UK Joins the CBDC Rush
Posted by Colin Lambert. Last updated: April 20, 2021
With an increasing number of central banks investigating digital currencies, the UK has joined the fray with the Bank of England and UK Treasury forming a taskforce to investigate the issuance of a central bank digital currency (CBDC).
The move was not unexpected since Bank of England governor Andrew Bailey told the Davos forum earlier this year that he believed no existing cryptocurrency structure is likely to succeed as a payments mechanism. The bank has also been investigating and discussing opportunities for digital currencies since an internal experiment held in 2016.
If the project proceeds, which is not guaranteed, it would exist alongside cash and bank deposits, rather than replacing them. The UK government and the Bank of England stress they 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”.
The Taskforce aims to ensure a strategic approach is adopted between the UK authorities as they explore CBDC, in line with their statutory objectives, and to promote close coordination between them. It will coordinate exploration of the objectives, use cases, opportunities and risks of a potential UK CBDC; guide evaluation of the design features a CBDC must display to achieve the UK’s goals; and support a rigorous, coherent and comprehensive assessment of the overall case for a UK CBDC. It is also tasked with monitoring international CBDC developments to ensure the UK remains at the forefront of global innovation.
The Taskforce will be co-chaired by deputy governor for financial stability at the Bank of England, Jon Cunliffe, and the UK Treasury’s director general of financial services, Katharine Braddick. As appropriate the Uk says other UK authorities will be involved in the Taskforce.
As part of the launch the Bank of England has announced the creation of a CBDC Engagement Forum to engage senior stakeholders and gather strategic input on all non-technology aspects of CBDC. The bank says the forum will have an important role in helping the Bank and HM Treasury understand the practical challenges of designing, implementing and operating a CBDC. It will consider issues such as – but not limited to – ‘use cases’ for CBDC, functional needs of CBDC users, roles of public and private sectors in a CBDC system, financial & digital inclusion considerations, and data & privacy implications. Members will be drawn from financial institutions, civil society groups, merchants, business users and consumers.
The Old Lady has also created a CBDC Technology Forum to engage stakeholders and gather input on all technology aspects of CBDC from a diverse cross-section of expertise and perspectives. It says the forum will have an important role in helping the bank to understand the technological challenges of designing, implementing and operating a CBDC. Members will be invited by the Bank and drawn from a range of financial institutions, academia, fintechs, infrastructure providers and technology firms.
Finally, the Bank of England has also announced it will establish a CBDC unit. A new division of the Bank of England, it will lead its internal exploration around CBDC. It will also lead the bank’s external engagement on CBDC, including with other UK and international authorities. Cunliffe will also oversee the work of this unit.