Written by Pooja Bokhiria
On 7 June 2021, the Bank of England (‘BoE’) published a summary of responses to its March 2020 Discussion Paper, ‘Central Bank Digital Currency: opportunities, challenges and design'.
The BoE has not yet decided whether to introduce a Central Bank Digital Currency (‘CBDC’) but has been engaging with stakeholders on the potential benefits, risks and practicalities of doing so. Respondents to the Discussion Paper supported the BoE’s study although there was no consensus on whether a CBDC was needed or desirable.
The BoE identified the following five principles from the responses:
- Financial inclusion: CBDCs should have a high degree of accessibility to people across the UK irrespective of their location, age, socioeconomic status, digital skills or any disability.
- A competitive CBDC ecosystem: Respondents agreed that the BoE should provide the minimum of level of infrastructure to create a reliable and efficient system. The private sector should then take the lead in responding to the needs of the end-users.
- Whether non-CBDC payment innovations could deliver the same benefits: The BoE’s assessment should consider to what extent such benefits could be delivered by private sector proposals.
- CBDCs should seek to protect users’ privacy: Respondents emphasised the need for CBDC to meet the same legal compliance standards as existing forms of digital payments. This includes anti-money laundering arrangements and protecting users from terrorist financing. Once those standards are met, the BoE should then ensure that users enjoy a strong level of privacy from any transactions associated with CBDC.
- CBDC should support the BoE’s ability to meet monetary and financial stability: The BoE should consider the potential benefits and opportunities offered by CBDC when evaluating how to meet policy objectives.
The responses to the Discussion Paper will guide the BoE’s future work as part of the recently announced CBDC Taskforce, Engagement and Technology Forums.
“We live in an increasingly digitalised world where the way we make payments and use money is changing rapidly. The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks, governments, and society as a whole, need to carefully consider and address. It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.” Andrew Bailey, Governor of the Bank of England