Plans for a UK central bank digital currency are in the research and exploration phase to assess its economic implications and opportunities for the country, as Sir Jon Cunliffe, Deputy Governor, Financial Stability, Bank of England, explains.
The way we live and interact with each other is changing in the digital world. And, as our lives become more digital, the way we use our money and pay for goods and services changes too. It is why the Bank of England (BoE) has been actively exploring the introduction of central bank digital currency (CBDC) – a new digital form of central bank money that could be used by households and businesses to make payments.
Of course, digital money is not new – households already have access to it, issued by private commercial banks, which they can use for electronic payments. What is new however, and what is motivating the BoE’s exploration of this topic, is the pace and scale of transformation to the payments landscape. Advances in technology are supporting the development of novel forms of money and, relatedly, we are seeing digital money proposals from a range of new players to this area.
“What is new… is the pace and scale of transformation to the payments landscape.”
In this context, a CBDC could, potentially, play the role in the digital world that cash plays in the physical world. It could provide the public with an accessible means of holding the financial system’s safest asset. And by requiring that all forms of digital money used in the UK could be seamlessly converted into digital BoE money on demand, it would tie different forms of money together and anchor confidence in the monetary system.
In the model under consideration, set out publicly in 2020, individuals would not have accounts with the BoE. The development of a CBDC would be a partnership with the private sector, which would be the face of the user and play a crucial role in integrating CBDC into new payments services and supporting innovation – for example through the provision of digital wallets. In addition, we are very clear that any CBDC would sit alongside cash, not replace it. The BoE will continue to provide physical cash as long as people want it.
No decisions have been made about a CBDC in the UK. In November 2021, the BoE confirmed what the next steps are for our CBDC work. We are now working with HM Treasury, in the research and exploration phase, thinking carefully through the economic implications, the opportunities, how it might be designed and the technological considerations. The responses to our Discussion Paper in 2020 showed strong support for the BoE exploring CBDC thoroughly, even if there were a wide range of views as to whether one should be introduced.
We will consult this year on an assessment of the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a UK CBDC. This consultation will inform a decision on whether to move into the design and development phase. We are clear that if a decision were reached to implement a CBDC, the earliest this would happen would be the second half of the decade.
The recent past has shown us that technology can change our lives very rapidly. The BoE will fulfil its role of ensuring members of the public have access to money they can use in their daily lives and that they can have confidence in that money. The forthcoming consultation will help to determine whether the introduction of a CBDC should be one of the ways in which we discharge that responsibility in a fast-changing world.