Posted by Bryony Widdup and Mariel Luna on 22 April 2021
Tagged to Bank of England, Banking, CBDC, Digital Currency, Payments

UK CBDC moves one step closer: The Bank of England is clearly interested in the economic and social opportunities associated with use cases for digital currency and now, alongside HM Treasury, has announced the creation of a UK Taskforce to explore creation of UK CBDC. With this announcement, we are one step closer to digital GBP (dGBP), which would revolutionise the payments system and create additional, stronger, bridges into other digital assets for use by all.

This latest step follows the CBDC discussion paper released by the Bank of England in March last year - refer back to our blog post here for a brief overview, exploring the opportunity for the bank to achieve its objectives of maintaining monetary and financial stability by embracing CBDC for household and business payments purposes. Core to these initiatives is the recognition that, as society transitions towards digital and e-money, the role of central banks as currently presented - in respect of cash and money supply - would be reduced unless CBDC is embraced.

The Bank of England has already demonstrated its forward thinking stance on these matters, taking a leading role last year - alongside six other central banks - in producing the Bank for International Settlements’ Central Bank Digital Currencies foundational principles report. However, it isn’t as far ahead as some. Other countries, including China and the Bahamas, have already released their own CBDCs and there will no doubt be lessons that have to be learned before the right solution is found here in the UK. In the US, Jerome Powell of the US Federal Reserve commented last week that the digital dollar is a “high priority project” for them, however commentators have noted that any issuance is likely to be at least a couple of years away.

There are many potential benefits as well as challenges, some of which are explored in one of our previous blog posts. Privacy and data concerns are often high on the agenda for those opposed to CBDC, as well as accessibility, security and many other technical concerns.

The recent announcement was cautiously drafted, noting that the Government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK, but will take a strategic approach in coordinating between authorities and stakeholders, in deciding how to move forward. However, we would understand this to be a significant positive step towards planning for these eventualities. The Taskforce will be supported by technology and engagement forums which will play a vital role in mapping out the relevant stakeholders interests and considering how technology can be used to maximise the benefits and minimise the risks within a widely available CBDC currency. Alongside the broader digital assets activities being undertaken across government, we expect that the taskforce will make significant steps in planning how digital money will be shaped as an integral part of the UK’s future economy.

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