The UK may need to catch up in terms of technical expertise required to supply a central bank digital currency (CBDC), as per recent statement by the deputy governor of Bank of England (BoE), Jon Cunliffe. At a treasury select panel hearing, Cunliffe discussed that the BoE needs to possess the required skills to develop a CBDC but aims to acquire them in another phase. Private sector partners are set to collaborate with the central bank in testing a potential digital pound. However, building an excellent working prototype, testing it in a counterfeit environment, and implementing it in a trending environment require specific technical knowledge.
Cunliffe emphasized that the overall design and working structure of a CBDC would depend on the motivation behind its development. For example, BoE’s primary motivation would be providing digital money or maybe the equivalent of BoE notes for all general payments. He also mentioned that a CBDC could offer benefits not currently in the current financial situation.
Comparing digital cash with the iPhone app store, he suggested that CBDC could “initiate a new frontier for the public for better payments and money flow.” One of his observations was that a digital pound could have a notable application in the form of micropayments, making it easier for users to make minimal payments, such as reading a single newspaper article.
Cunliffe also highlighted the importance of ensuring that a CBDC does not compromise financial stability or pose risks to the banking system. He noted that the central bank must carefully consider privacy, security, and the potential impact on monetary policy transmission channels.
The Bank of England has been closely monitoring the global developments in CBDCs, with several central banks exploring the potential to issue digital currencies. China has already launched its digital yuan, and other countries such as the US, Japan, and Canada are also considering their CBDCs.
Suppose the UK were to issue a digital pound. In that case, it could have significant implications for the financial industry, including changes to how individuals and businesses make payments, and how financial services are provided. It could also offer potential benefits such as increased financial inclusion and reduced costs associated with cash handling.
