The Bank of England (BoE) is investigating the potential of a new, digital form of currency that would be similar to Bitcoin and other cryptocurrencies, except issued by the UK’s central bank.
A Central Bank Digital Currency (CBDC) would be like a digital form of cash. As well as issuing cash for all to use, the Bank of England already generates electronic money for banks and certain financial institutions to use. The CBDC would be available to everyone and would allow anyone to use it to make electronic payments.
Launching the new taskforce as part of Fintech Week, Chancellor Rishi Sunak said: “Our vision is for a more open, greener, and more technologically advanced financial services sector. The UK is already known for being at the forefront of innovation, but we need to go further.”
‘Not a cryptocurrency’
The BoE is keen to stress that a CBDC, if it ever came into being, would be fundamentally different from cryptocurrencies such as Bitcoin and other cryptoassets. These combine new payment systems with new currencies that aren’t issued by a central bank.
Previously, the Bank’s Financial Policy Committee weighed in on cryptocurrencies, saying that, while they didn’t currently pose a risk to the nation’s monetary stability, they do pose risks to investors.
It went as far as to say anyone buying cryptoassets should be prepared to lose all their money.
A UK CBDC would not be a new currency, nor would it use a new payments system, so £10 worth of CBDC would be of equivalent value to a £10 note. It would also use existing payment systems. A UK CBDC would be introduced alongside cash and bank deposits, rather than replacing them.
Such digital currencies already exist elsewhere in the world. The Central Bank of the Bahamas piloted a digital version of the Bahamian dollar, called the sand dollar, in 2019 before launching it in October 2020.
China, meanwhile, has been working on a digital currency since 2014 and launched pilot projects in a number of cities last year.
The BoE published a discussion paper on the use of CBDCs in March 2020, but has now launched a taskforce to coordinate the exploration of a potential UK CBDC.
The government has not yet decided whether to moved forward, and the taskforce, chaired by Bank of England deputy governor for financial stability Jon Cunliffe and HM Treasury’s director general of financial services Katharine Braddick, will examine the possible use cases and risks.