The Bank of England (BoE) together with six other central banks and the Bank for International Settlements (BIS) published a report on 9 October 2020 assessing the feasibility of publicly available Central Bank Digital Currency (CBDC).
This is an interesting collaboration between central banks in the European region whose views on CBDC have historically differed, and who appear to be warming to the concept over time. With the UK in the midst of Brexit and not a eurozone participant, the BoE’s co-chairing role is also a reflection of the ongoing importance of co-ordination in the region, in particular in the face of international digital currency competition from Asia and the US.
Earlier this year, the BoE had published its own discussion paper on CBDCs (which we reported on here). This joint report is another step in its ambitious agenda to explore, without yet committing, to the possibility of CBDCs.
The report highlights the need for ‘coexistence with cash and other types of money in a flexible and innovative payment system’ and points to key features which CBDCs would need to have which include convenience, low cost and convertibility.
It also identifies some of the key features of any future CBDC system, which must be:
- Resilient and secure to maintain operational integrity.
- Available 24/7/365 for use by end user and instant
- Underpinned by appropriate standards a clear legal framework.
- Have an appropriate role for the private sector, as well as promoting competition and innovation.
All of which is underpinned by three foundational principles:
- Do no harm to wider policy objectives
- Ensure co-existence and complementarity of public and private forms of money
- Promote innovation and efficiency
The joint report is a collaborative effort by central banks, each of whom have their own CBDC agenda. Co-chair of the group, and BoE Deputy Governor, Sir John Cuncliffe said “this report is a real step forward for this group of central banks in agreeing the common principles and identifying the key features we believe would be needed for a workable CBDC system. As well as helping central banks to meet their public policy objectives, the report provides a useful framework for how central banks provide money and support payment systems in an ever-evolving digital world.”
You can read the full report here: https://www.bis.org/publ/othp33_summary.pdf