The Bank of England is calling for input from industry and the public on the pros and cons of introducing a central bank digital currency (CBDC).
The BofE is among those that have been exploring the issue, with outgoing governor Mark Carney making some positive noises, including positing the creation of a network of CBDCs as a means of overcoming the destabilising dominance of the US Dollar on international trade.
However, in a discussion paper on the opportunities, challenges and design of a CBDC, Carney stresses that the BofE has not yet made a decision on whether to introduce an electronic form of central bank money.
Setting out some basic ground-rules, the bank says any UK CBDC would be denominated in pound sterling, would work alongside – rather than replace – cash and bank deposits, and would not be a cryptocurrency, or even necessarily use distributed ledger technology.
The paper identifies several possible benefits of a CBDC, saying it could help avoid the risks of new forms of private money creation, meet the needs of a digital economy, address the decline in cash usage, and help improve cross-border payments.
However, there are also risks – if significant deposit balances are moved from commercial banks into CBDC, it could have implications for balance sheets and the amount of credit provided by banks.
On the technology, DLT is an option but “there is no inherent reason it [the CBDC] could not be built using more conventional centralised technology”. Distribution and decentralisation may enhance resilience and availability, but could have a negative impact on aspects such as performance, privacy and security.
The bank is now inviting the public, technology providers, the payments industry, financial institutions, academics and other central banks and public authorities for feedback on a CBDC’s impact on payments, its impact on monetary and financial stability, the functionality and provision of a CBDC, and the technology involved.
Interested parties have until 12 June to respond.
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