It seems that progress is being made in relation to the UK’s development of a Central Bank Digital Currency (“CBDC”) as HM Treasury (“HMT”) and the Bank of England (“BoE”) have announced the next steps that will be taken to determine whether we will see the creation of a ‘digital pound’ in the near future. This is further to the previous creation of the joint CBDC Taskforce as well as the establishment of two external engagement groups, the CBDC Engagement Forum and the CBDC Technology Forum.
Such a CBDC would take the form of digital money issued by the BoE for use by both businesses and consumers for everyday payment needs, and would exist alongside cash and bank deposits.
A consultation is planned for 2022 that will set out HMT’s and the BoE’s 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 will also include consideration of the main issues, high level design features, benefits for users and businesses and further work.
The BoE’s statement confirms that the consultation will form part of a ‘research and exploration’ phase to help inform policy development over the coming years, and reiterates that no decision on whether to introduce a CBDC in the UK has been made.
Following the consultation, a decision will be made on whether to move to a ‘development phase’, which would run for several years. This phase would include work in relation to the conceptual architecture for, and in-depth testing of the design and feasibility of, a UK CBDC. If such a development phase concluded that a UK CBDC should be introduced, earliest launch would be in the latter half of the decade.
It is promising to see steps towards the development of a UK CBDC and continued regulatory engagement. It is also clear that any introduction of a UK CBDC is some years away given the complexity of the issue and the seismic shift it represents. However, given the increased attention (both media and regulatory) in cryptocurrencies generally, a willingness to remain open to a UK CBDC and a roadmap for its potential development is a positive sign for both the crypto and distributed ledger technology (DLT) sector.
Written by Brandon Wong, a solicitor in Burges Salmon's fintech team.
"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." John Glen MP, Economic Secretary to the Treasury