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Highlights
- Bank of England and HM Treasury will hold a formal consultation in 2022 design features of the central bank digital currency (CBDC).
- Stakeholders can provide valuable inputs to BoE and HM Treasury on the issues and challenges of CBDC implementation.
The UK Treasury and Bank of England (BoE) have shown the first glimpse of seriously contemplating the launch of central bank digital currency (CBDC) in the country. On Tuesday, the BoE informed that they would hold a formal consultation with the HM Treasury in 2022 to discuss the optimal design features, benefits and implications for users and business etc. The results of the 2022 consultation will determine the feasibility of a CBDC launch.
Called the development phase of planning, the consultation committee will form a 'research and exploration' phase, which will help the decision-makers take an informed decision for the launch of a UK CBDC.
The BoE and Finance Ministry have been aggressive on the CBDC front and earlier in April had established a task force to explore the possibility of a rollout of a pilot CBDC. The very setting up of the Digital Pound Forum alongside the CBDC Taskforce showcased the intent and seriousness of exploring the idea of CBDCs as a form of currency in the future.
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The Digital Pound foundation got a further boost when Monzo, PayPal, Ripple and ASOS joined the Bank of England (BoE) and Treasury's CBDC Engagement and Technology forums.
It's time that the UK affirm its position in Europe as far as CBDC is concerned, considering its favourable environment for cryptocurrencies and blockchain-based technologies. In Europe, though, Sweden is the front runner with its CBDC pilot of E-krona. If Sweden's Riksbank successfully creates its CBDC, it could be the first nation among the European countries or for the world to launch a CBDC. Globally, China is the leader of the CBDC pack and is slated to allow foreign athletes and visitors to use its CBDC during the Beijing Winter Olympics in 2022.
No concrete decision yet
Even though BoE's and HM Treasury announcement does send out positive signals, but so far, no concrete decision has been made on when to introduce a CBDC in the UK. A project of such a huge scale will need everyone to be on the same page with the financial institutions, government and market participants working towards its success.
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BoE, which had set up the Engagement and Technology forums, would need constant updates and inputs from the relevant stakeholders from industry leaders, academia etc., to move into the next step of CBDC development.
Deputy Governor for Financial Stability, Jon Cunliffe, believed that the plan to establish a consultation committee on CBDC next year is a crucial step in the UK's policy development. It will also allow the stakeholders to point issues on its feasibility and should the public sector advance to the next phase.
Opportunities and Challenges
The consultation is a welcome step, though it does send out a strong signal to Britain's competitors that it is aggressively working on the CBDCs. Opportunity wise, a successful launch of CBDC would be an immense benefit for the UK as it reiterates the recent Chainalysis findings of Britain being the hub of activities in Europe.
Bringing the leading players of the UK financial sectors, academia, and other stakeholders will help the government plan out a flawless system wherein cryptocurrencies, CBDCs and fiat currency can co-exist in the same environment.
The challenge, though, would be in the rollout and bringing everyone on the same plate. Besides that, the operational challenges to ensure that citizens are made aware of how a CBDC works and where all it can be used need to be meted out before giving a final launch date. For now, though, it does look promising that the UK is showcasing the promptness in the CBDC space.
