Over the past few days we have looked at the latest CBDC developments in Japan, China, Canada, Australia and the EU but what is happening in the UK? A couple of days ago the Bank of England’s finch director, Tom Mutton, provided an insight into the UK Central Banks current thinking on CBDC’s. In his speech Tom states that while a central […]
Over the past few days we have looked at the latest CBDC developments in Japan, China, Canada, Australia and the EU but what is happening in the UK?
A couple of days ago the Bank of England’s finch director, Tom Mutton, provided an insight into the UK Central Banks current thinking on CBDC’s.
In his speech Tom states that while a central bank digital currency, or CBDC, was “a focus” for the Bank of England, the position the bank had taken this past March hadn’t changed.
We haven’t made any decision on whether or not to launch a retail CBDC. But we are exploring the pros and cons with interest.
Tom Mutton, Bank of England
Tom noted that the central bank was looking into payment options for people in the U.K. who were affected by the COVID crisis “to deliver safe, efficient and convenient payments to shoppers and merchants” — a role that a CBDC could potentially fill.
He added that privacy was “a non-negotiable” for a retail CBDC, “there must be ‘no harm’ to monetary and financial stability,” and any digital currency released by the bank “must be able to coexist with, and complement bank notes and commercial bank money.”
There’s some things that Tom believes it would be helpful for a retail CBDC to display:
- CBDC must have a clear use case: BoE explorations initially focus on a CBDC with a ‘payments’ use case, using a ‘platform model’, where the central bank operates the core ledger, and private players the customer interface.
- It should complement other forms of money: CBDC must be able to coexist with, and complement bank notes and commercial bank money. Cash in particular, continues to be important to many people in our society, and will remain available for as long as people wish to use it.
- There must be ‘no harm’ to monetary and financial stability: Indeed, by addressing the risks of private money creation and by supporting resilient and trusted payments, a CBDC should contribute positively to stability.
- Future payment needs should be supported: Our economy is digitising, and our payments needs evolving. CBDC should therefore be flexible enough to support future use cases such as programmable money and micropayments.
- Privacy must be preserved: Privacy is a non-negotiable. It is essential to trust in money, and there must be a clear consensus for how society’s expectations of privacy will be safeguarded. However, at the same time privacy, does not have to mean anonymity.
Tom also references some challenges that the Bank of England are being mindful of:
- Technology shouldn’t dictate policy: The BoE’s focus is on public policy objectives, and the functional and economic design we want for CBDC. We shouldn’t let the ‘here and now’ limitations of technology obscure our overall goals.
- CBDC doesn’t have to use DLT: There is no question that DLT is a very promising technology. It certainly is relevant to the BoE’s explorations, but isn’t the ‘only’ technology solution to think about.
- Walled gardens should be avoided: A CBDC network must promote competition and innovation. That means avoiding ‘closed loop’ systems, and ensuring interoperability with, and convertibility into and out of, other forms of money.
- We can’t ‘go it alone’: Central Banks need to partner with a broad range of stakeholders given the breadth of issues presented by CBDC. Central Banks won’t have all the answers, and working well with government, academics, private firms and civil society, at home and abroad, will be essential.
Mutton’s remarks are consistent with those of other leadership at the central bank. In July, BoE governor Andrew Bailey stated the bank was looking into the possibility of issuing a digital currency backed by fiat.