The UK’s Treasury and the Bank of England have announced a new, bullish timeframe for the build and launch of a digital pound CBDC.
The UK Treasury and Bank of England are designing a digital pound that could supplant banknotes by the end of this decade and fend off a Big Tech competitor.
With the decline of cash, ministers and officials think there is likely to be a need for a publicly-backed digital currency that would sit in wallets on smartphones and could be used for shopping much like notes and coins.
Consumers already accustomed to fast digital payments would see few obvious differences, but the core infrastructure would be part of the central bank and could be guaranteed to be available for everyone to use.
Officials believe a digital pound would ensure the BoE maintains control of the heart of the UK financial system and prevent any private company from keeping payments within a closed network.
Both institutions want to ensure the public has access to safe money that is easy to use in the digital age. Chancellor Jeremy Hunt said the CBDC could be a new “trusted and accessible” way to pay.
“We want to investigate what is possible first, whilst always making sure we protect financial stability,” Mr Hunt said.
The Treasury and the Bank of England will formally start a consultation for the digital currency this week.
Digital Euro Project
For our European counterparts who are also keen to use a digital euro to buy a cup of coffee or pay your taxes, there is also a similarly bullish timeline in place.
At the BAFT Europe Bank to Bank Forum in London, Jürgen Schaaf, advisor to the European Central Bank (ECB), said the date for a possible issuance of a digital euro is 2027.
Laying out a potential timeline for issuance of the retail central bank digital currency, Mr Schaaf, who advises the senior management of the ECB’s Market Infrastructure and Payments division, said the digital euro is currently in the investigation phase and that by the spring, the ECB should have an overview of design choices.
“By the autumn, the ECB’s Governing Council will decide if we are going to proceed with the realisation phase,” he said. “Extensive testing of prototypes will take another three years to really get to grips, so the earliest issuance would be 2027. This will still require a final decision to be taken prior to the issuance.”
CBDCs are a growing phenomena, however, while 114 countries are exploring them, according to the Atlantic Council’s CBDC Tracker, only 11 have fully launched a digital currency, and 18 of the G20 countries are now in the advanced stages of CBDC development.
The slow moving pace is mainly based on the as yet fully resolved issue surrounding the impact of CDDCs on the existing banking and therefore financial structure.
CBDCs could be highly disruptive and have commercial implications. One such impact is the potential for retail CBDCs to divert customer deposits from commercial banks to central banks.
“The main financing source for banks in Europe is customer deposits,” Mr Schaaf explained.
“If we design a digital euro that is too attractive, the risk is that it will move money from the balance sheets of commercial banks to the ECB.
We are convinced that we can address that with a threshold on private holdings of the digital euro or by disincentivising remuneration for a CBDC, or a combination of both, so the private sector is more attractive.”
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