UK treasury and the Bank of England (BoE) is planning to launch CBDC consultation as a next step on the exploration of a UK Central Bank Digital Currency (CBDC).
Her Majesty’s Treasury (HMT), sometimes referred to as the Exchequer, or more informally the Treasury, is the department of the Government of the United Kingdom responsible for developing and executing the government’s public finance policy and economic policy.
The Bank of England (BoE) is the UK’s central bank. It is responsible for the monetary and financial stability for the people of the United Kingdom. Established in 1694 to act as the English Government’s banker, and still one of the bankers for the Government of the United Kingdom, it is the world’s eighth-oldest bank.
A central bank digital currency (CBDC) is virtual currency backed and issued by a central bank.
UK CBDC Would Not Replace Cash And Bank Deposits
The Bank of England states that the UK CBDC would be a new form of digital money issued by the BoE and for use by households and businesses for their everyday payments needs. It would exist alongside cash and bank deposits, rather than replacing them.
CBDC Consultation To Go Live In 2022
In a Tuesday statement, the Bank of England said that it will launch a consultation with HM Treasury which will set out their assessment of the case for a digital pound.
The proposed CBDC consultation will analyze the merits of further work to develop an operational and technology model for a UK CBDC. It will evaluate the current major issues, consider the high level design features, possible benefits and implications for users and businesses, and considerations for further work.
This consultation will form part of a ‘research and exploration’ phase and helps to inform policy development over the next few years.
Central banks of other large economies such as India and New Zealand have planned CBDC consultations to formulate future action plans.
No Timeline For A CBDC Launch
UK has so far not made any final decision to introduce a CBDC in the country, which it believes would be a major national infrastructure project.
In April 2021, the Bank of England and HMT initiated the joint CBDC Taskforce to coordinate the exploration of a potential UK CBDC. The Bank also set up the Engagement and Technology forums, where relevant stakeholders from industry, civil society and academia provide strategic and technical input to the work on CBDC.
UK CBDC To Be Launched After 2025
The Bank of England mentioned in the new statement that the 2022 CBDC consultation will inform a decision on whether the authorities are content to move into a ‘development’ phase which it believes will span several years.
A technical specification would follow the consultation explaining the proposed conceptual architecture for any CBDC. This could involve in-depth testing of the optimal design for, and feasibility of, a UK CBDC.
The Bank of England indicated that any launch can be expected after 2025. The BoE Said:
If the results of this ‘development’ phase conclude that the case for CBDC is made, and that it is operationally and technologically robust, then the earliest date for launch of a UK CBDC would be in the second half of the decade.
Bank of England
Economic Secretary to the Treasury, John Glen, said:
“This consultation will begin an open discussion on the role a UK central bank digital currency might play in the UK. I’d encourage everyone to contribute to the discussion so we can explore the opportunities this could bring, as well as understanding any risks it may pose.”
Deputy Governor for Financial Stability, Jon Cunliffe, said:
“The plan to publish a consultation next year on CBDC is a crucial step in our policy development, especially as we further our thinking on the pressing issues at hand. What it will do is provide a platform for interested parties and relevant groups to engage with the key questions on the merits of CBDC, and whether the public sector should advance to a development phase.”
Central Banks Across The Globe Pushing For CBDC
The interest in digital currency has grown significantly in the past one year. The new interest is equally among retail users as well as businesses.
If we look at the developments around cryptocurrency this year, it is clear that there is a growing acceptance in this new financial system which was missing a year ago.
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All the major countries that were earlier reluctant to recognize Bitcoin and other digital currencies as a medium of payment are now amid huge pressure with the growing enterprise adoption. A trend has now emerged amongst Central banks to issue digital version of the fiat as there is little scope for them to counter public digital currencies like Bitcoin.
In July, the BIS, IMF and World Bank released a report on CBDC for the G20. The report outlined that CBDCs had the power to offer faster, cheaper, transparent and more inclusive cross-border payments than the traditional financial system.
According to Atlantic Council CBDC tracker, 87 countries (representing over 90 percent of global GDP) are now exploring a CBDC. In May 2020, only 35 countries were considering a CBDC. 7 countries have now fully launched a digital currency. Nigeria is the latest country to launch a CBDC, the first outside the Caribbean. The Bahamian Sand Dollar was the first CBDC to become widely available.
Currently, China leads globally in terms of a state issued CBDC amongst the major economies. CBDC is a growing source of interest around the world as with growing adoption of Bitcoin and other cryptocurrencies. The trend is even forcing smaller economies such as Bhutan to launch their own digital currency.