Yesterday, the UK Treasury Committee held a hearing with officials from the Bank of England (BofE) to discuss the subject of Central Bank Digital Currencies (CBDCs). Sir Jon Cunliffe, Deputy Governor for Financial Stability shared the Bank’s position on the ongoing consultation around a potential digital pound. When pressed, he said the Bank believes there’s a more than 50% chance that a retail CBDC will launch in the future. He outlined the potential upside of the new form of payment.
In the first round of questions, the Bank officials were asked about the ambivalent tone of the consultation paper, which argued that, while a CBDC is likely to be needed, the decision on whether the BofE should launch one has not yet been taken. Sir Cunliffe defended the Bank’s position arguing that this stems from the fact that many of the trends in the economy, society, and technology are still evolving. A CBDC represents a major public infrastructure project that cannot simply be rushed out. Hence, advance preparation is needed. However, “it would be complacent to assume that those new technologies will not develop and that people will not find ways to integrate payment operations much more deeply into digital platforms,” said Cunliffe, so a forward-looking assessment is essential.
Overall, the BofE points to huge benefits for the economy and society. CBDCs would allow for things like micropayments, automated delivery systems, and programmable money. But rather than addressing a particular consumer need or market failure, the Bank stresses that “this is about opening a new frontier for people to improve payments and the way in which money is used,” said Cunliffe.
Nonetheless, the consultation also recognized six areas of potential conflict that will require further assessment to ensure not to sacrifice performance, including security, resiliency, and privacy. These areas will continue to be explored in the next design stage but are already raising questions about what sort of liability frameworks might be put in place. In other words, who pays when something goes wrong?
Lastly, the issue of financial inclusion was a key topic throughout the hearing. More than a million people in the UK do not have a bank account, and 20 percent of adults say cash is still their preferred payment method, so the shift towards a highly digitalized, cashless society could severely affect their ability to make payments.
But while it is difficult to predict people’s future attitudes towards money fully, the BofE imagines situations where a CBDC could lead to greater financial inclusion. For example, digital wallets require fewer compliance checks and documentation than regular bank accounts. Cash will continue to be around for some time, but there is no desire to restrict the growth of internet commerce. “People want to pay in a way that suits the way they live, and businesses want to take payment in a way that’s most convenient for them. That’s what drives the decline (in cash),” said the Deputy Governor.