The Bank of England, like many other central banks around the world, is still weighing the pros and cons of issuing a central bank digital currency (CBDC) — and if it ultimately decides to go ahead, how the design should respect citizens’ privacy and guarantee financial stability.
Earlier this year, the U.K. Parliament published a paper assessing the benefits of having a CBDC against the risks that a retail CBDC would pose, especially on the issues mentioned above: privacy and financial stability.
The report concluded that there was not a convincing case for why the U.K. needs a CBDC. “The introduction of a U.K. central bank digital currency would have far-reaching consequences for households, businesses, and the monetary system. We found the potential benefits of a digital pound, as set out by the Bank of England, to be overstated or achievable through less risky alternatives,” said Lord Foryth of Drumlean, Chair of the House of Lords Economic Affairs Committee.
Read More: UK Parliament Committee Sees More Risks Than Benefits in CBDCs
The Bank of England doesn´t seem to be in a hurry to issue a digital currency either. In November, the Bank announced its first steps on the exploration of a CBDC. One of these steps is launching a consultation paper in 2022 which will set out their case for a U.K. CBDC, but it will be part of a “research and exploration” phase. Thus, no decision has been made on whether to issue a CBDC in the U.K. — and it would take years before the “development” phase is implemented, if at all.
But now, it is a senior member at the Bank of England who gave some additional information about what the bank probably won´t be doing. “I think it’s safe to say it’s highly unlikely that the Bank would issue a retail wallet,” said Katie Fortune, a senior manager in the central bank’s CBDC unit. Fortune said wallets that could support a U.K. CBDC are more likely to be produced by the private sector.
This would be in line with similar projects in other countries like Canada, where the Bank of Canada is working on a CBDC considering an infrastructure with different layers where the central bank would be in charge of issuing a digital currency and commercial banks and financial institutions would play an important role in the onboarding of consumers, digital verification, anti-money laundering checks and probably the use of wallets to manage and exchange digital currencies.
Other countries like China or El Salvador are encouraging citizens to use their state-backed wallets to manage their digital currencies — or bitcoin, in the case of El Salvador.
The Bank of England may still be at an early stage of the research phase because, according to Fortune, it is not yet even clear if the bank would use blockchain technology to develop a digital currency.
Read More: Boston Fed, MIT Digital Dollar Test Casts Doubt on Blockchain as Processing Platform
The initial rush by central banks to jump into the CBDC wagon was triggered in some cases by the fear that Facebook´s digital currency (Libra, then Diem) or other stablecoins could destabilize some economies, but they seem to realize that the risk is unlikely to materialize, and many of these banks are now taking additional time to decide what to do.
Many countries have launched wholesale CBDCs to settle transactions between banks, but far fewer have ventured to do the same at the retail level. Some of the major banks — like the European Central Bank, the Federal Reverse and the Bank of England — are not even sure if a retail CBDC is the way forward. The Bank of Canada is probably the most advanced among western countries, with a model for a retail coin already under way, but the government hasn’t made a decision about whether to launch a digital currency.
Experts interviewed by PYMNTS agreed that the adoption of digital currencies is a matter of time — it is not about if, but when, they will be issued — but they also warned that it is not important to get it first, but to get it right.
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