In the latest issue of the e-Pound:Unpacked newsletter, we take a look at the creation of the UK’s Central Bank Digital Currency Taskforce, see which Central banks are discussing CBDCs and look at the New Zealand central banks consultation on the future of money.

Central Bank Digital Currency Taskforce

Source: HM Treasury

HM Treasury have published the Terms of Reference for the Central Bank Digital Currency Taskforce.

The Chancellor announced the Central Bank Digital Currency (CBDC) Taskforce as part of the April 2021 Fintech week. This Taskforce brings together HM Treasury and the Bank of England, to coordinate the exploration of a potential UK CBDC.

The Government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK, and will engage widely with stakeholders on the benefits, risks and practicalities of doing so. A CBDC would be a new form of money that would exist alongside cash and bank deposits, rather than replacing them; the Government recognises that cash remains important to millions of people across the UK, and has committed to legislating to protect access to cash.

The purpose of the Taskforce is to ensure a strategic approach to, and to promote close coordination between, the UK authorities as they explore CBDC, in line with their statutory objectives.

This is grounded in the following functions:

  1. Coordinate exploration of the objectives, use cases, opportunities and risks of a potential UK CBDC.
  2. Guide evaluation of the design features a CBDC must display to achieve our goals.
  3. Support a rigorous, coherent and comprehensive assessment of the overall case for a UK CBDC.
  4. Monitor international CBDC developments to ensure the UK remains at the forefront of global innovation.

More:


Central banks convene on CBDCs

Source: Finextra.

Seven central banks have issued a set of reports intended to build a global consensus for the design and development of a retail digital currency.

Building on an initial report outlining foundational principles for CBDCs published in 2020, the group formed by Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank, Swiss National Bank and the Bank for International Settlements has now turned to practical policy and implementation issues. 

While none of these central banks has yet decided to proceed with a retail CBDC, they believe continuing to work on the topic is key, due to its wide-ranging implications.

CBDCs can foster innovation and preserve the best elements of the current system as it evolves. This group is helping central banks to answer difficult and practical questions about how to offer safe and neutral currency with interoperable systems that harness new technology and serve the public.

Benoît Cœuré, head of the BIS Innovation Hub and working group co-chair

The first report explores how private-public collaboration and interoperability can be designed into CBDC systems. In particular, policies about privacy and access to payment data would be key design elements in order to maintain public trust, the group concludes.

The second report focuses on how a CBDC could best serve people and businesses in a fast-changing technological landscape. Lessons from previous payment innovations compiled in the report, show that success often requires harnessing network effects and not requiring users to obtain new devices. 

The third report outlines the possible impact of CBDC issuance on banking systems, in terms of intermediation capacity and overall resilience. Preliminary analysis highlights the importance of allowing the financial system time to adjust and the flexibility to use safeguards to influence CBDC adoption.

This collaborative input from a group of central banks will help make sure that innovation in an increasingly digital world, the role the private sector plays in any CBDC system to help it meet future payments needs, and how the financial system might evolve are carefully evaluated. These reports make sure these issues are at the centre of the debate on CBDCs.

Sir Jon Cunliffe, Bank of England deputy governor for financial stability and working group co-chair

The publication of the reports come a day after the Bank of England announced the membership of the central bank digital currency (CBDC) Engagement and Technology Forums. The membership is wide-ranging, and includes representatives from major banks, neo-banks, cards and payment schemes, retailers, and consumer advice agencies.

The Technology Forum met for the first time in late September, while the Engagement Forum will have its inaugural meeting later in the year.


New Zealand central bank opens consultation on future of money

Source: Finextra.

The Reserve Bank of New Zealand has opened a public consultation on the future of money and the case for a central bank-backed digital currency.

The bank has published two issue papers – ‘The Future of Money – Stewardship’ and ‘The Future of Money – Central Bank Digital Currency’ – as the basis for the consultation, which will close on 6 December.

We’re seeking public input on how we should perform our role as steward of money and cash, and how we should assess the case for central bank money in a digital form alongside cash.

Reserve Bank of New Zealand, Assistant Governor, Christian Hawkesby

He notes that two years ago the Bank’s work was focused on the future of cash, but now it has broadened out to consider the future of money.

We still have work to do to preserve cash and the cash system for those that need it,” he says. “At the same time, trends in cash use and availability along with digital innovation create opportunities to innovate as well as challenges. We believe these should be discussed widely and our consultations aim to encourage that

Reserve Bank of New Zealand, Assistant Governor, Christian Hawkesby

In November the Reserve Bank will be releasing a third issues paper that will set out the issues facing the cash system and explore “high level” options to achieve greater efficiency and resilience.

A central bank digital currency would see the features and benefits of cash enjoyed in the digital world, working alongside cash and private money held in commercial bank accounts,” says Hawkesby. “It could make for much more efficient and integrated platforms benefitting individuals and businesses, as well as protecting monetary sovereignty. However, any decision to issue a CBDC would need to carefully consider operational risks, such as cyber security, and impacts on the financial sector.

Reserve Bank of New Zealand, Assistant Governor, Christian Hawkesby