Picture: 123RF/DIMARIK16
Picture: 123RF/DIMARIK16

London — Britain’s Treasury and the Bank of England (BOE) are weighing the potential creation of a central bank digital currency (CBDC), joining authorities from China to Sweden exploring the next big step in the future of money.

The government and central bank on Monday announced the creation of a taskforce to co-ordinate on the possibility of BOE-issued digital money for use by households and businesses. They will engage in discussions with stakeholders on the risks and benefits before making a decision.

If approved, the digital currency would “exist alongside cash and bank deposits, rather than replacing them”, according to the statement.

With modern technologies and the coronavirus accelerating the push towards cashless transactions, and crypto currencies such as bitcoin gaining traction, central banks are taking action to make sure they don’t fall behind.

In 2020, the Bahamas launched the Sand Dollar, making it among the world’s first sovereign-backed digital currencies. The European Central Bank and Sweden’s Riksbank have said they could follow suit at around the middle of the decade.

China is also considering a digital yuan, but the Federal Reserve has previously said it was not something the US would rush to use.

The UK task force will be jointly chaired by BOE deputy governor Jon Cunliffe and the Treasury’s director-general of financial services, Katharine Braddick. A new CBDC division will be set up at the central bank.

According to a recent PwC report, mainland China is third behind the Bahamas and Cambodia in a ranking of the maturity of CBDC projects.

More than 60 central banks are now exploring digital currencies, with retail projects more active in emerging economies given the importance of financial inclusion, while interbank or wholesale applications tend to be more predominant in advanced economies, the report said.

 The Bahamas and Cambodia take top marks in retail because their projects are already live, while China is still in the test phase. Only 23% of retail projects have reached implementation stage, while nearly 70% of wholesale projects are running pilot programmes, according to the report.

“CBDCs will contribute significantly to the modernisation of the international monetary landscape, hand-in-hand with reconfiguration in both payment and financial infrastructure,” PwC said.

With China in the testing phase on its digital yuan, other countries have accelerated their efforts. Jurisdictions such as Sweden and the EU are starting to make some headway.

Digital yuan

China’s efforts to create a digital yuan are aimed at domestic use and its goal for internationalising its currency is not to replace the dollar, a senior official from its central bank said on Sunday.

As for interbank or wholesale projects, Thailand and Hong Kong tied for the top ranking, according to the PwC report. They’re followed by Singapore, Canada and the UK.

The report also said more than 88% of CBDC projects at pilot or production phase use blockchain as the underlying technology. While it isn’t always necessary for such projects, it helps offer secure transfer of ownership, transparent audit trails and increasing interoperability with other digital assets, the report said.

“The public will be one of the biggest beneficiaries of CBDCs as it will give them access for the first time to a digital form of central bank money,” said Henri Arslanian, global crypto leader at PwC. “And that is a big milestone in the evolution of money.”


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