Banking News

UK has no plans for a wholesale CBDC, envisages banks enabling synthetic

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Earlier this week, the UK House of Lords Economic Committee met about central bank digital currency (CBDC). Baroness Kramer asked whether the central bank was considering a wholesale CBDC that would not be available to consumers. The response is that the private sector will be able to achieve a similar result themselves.

Bank of England Governor Bailey and Deputy Governor Sir Jon Cunliffe both dismissed the option of a wholesale CBDC at a domestic level. 

Bailey highlighted that banks have existing access to central bank money through its real time gross settlement (RTGS) system.

“Retail (CBDC) gets more attention because the public policy issues are bigger. Wholesale is more about can we use this technology to be more efficient?” said Cunliffe.

“When people say why aren’t you doing wholesale, the answer is we have wholesale. There may be technological changes that the private sector is working on and we’re working with them.”

In April, the central bank introduced a new kind of central bank account, an omnibus account. This allows multiple institutions to co-mingle funds in a shared account. Hence, banks that already have access to central bank accounts can settle with each other via a digital settlement token.

Referring to the omnibus account, Cunliffe said, “There are a number of proposals around to do precisely that as a way to introduce the technology on the wholesale side and we’re working with them,” said Cunliffe.

One project looking to launch an omnibus account is Fnality, formerly the Utility Settlement Coin, which is backed by 14 major banks and Nasdaq.

Wholesale CBDC for cross border transactions

Baroness Kramer has concerns about the UK being left behind, saying that Standard Chartered is convinced about its benefits. “Give them a more efficient, cheaper settlement mechanism and they’ll move their operations to that location. So it creates issues around the City of London and its future,” said Baroness Kramer.

Sir John Cunliffe highlighted that cross border payments are a different issue. He again pointed to the potential for omnibus accounts, although he acknowledged that multiple central banks would need to greenlight omnibus accounts for international transactions. 

Cunliffe chairs the Committee on Payments and Market Infrastructures at the Bank for International Settlements (BIS) & co-chairs a group of central banks that are sharing CBDC learning.

Hence, he pointed to other solutions being explored at the international level, such as interlinking faster payments systems and the use of CBDC and stablecoins on new payment rails to improve retail payments.

While he didn’t go into further details regarding cross border CBDC, there are several initiatives in progress. These include Project Jura between the central banks of France and Switzerland, Project Dunbar with the central banks of Singapore, Malaysia, Australia and South Africa, and the M-CBDC Bridge project with Thailand, Hong Kong, China and the UAE.