“There's been a gradual privatisation in recent years and decades in the money that's used for payments,” said Shiv Chowla, senior manager for CBDC at the BoE. “It’s the right time for the Bank of England to be considering the future of money and the type of money that central banks provide to the public.”
The CBDC would be universally available for retail use to consumers and businesses. Unlike cryptocurrencies, the digital currency would not be subject to volatility and would be made available through a Distributed Ledger Technology (DLT) adopted by the central bank.
Chowla also stressed the CBDC was “absolutely not” a replacement for cash.
In October last year, the Bahamas launched a CDBC – the Sand Dollar – to provide “greater flexibility and accessibility for residents that want to participate in financial services.”
Today, countries including Brazil, Russa, and the US are conducting retail research to introduce a CBDC whilst China and Sweden have ongoing retail pilots, according to BIS.
Much like the Sand Dollar, the BoE aims to offer opportunities by supporting “a more resilient payments landscape” via a new payment rail, explained Chowla. The CBDC will provide further safety and trustworthiness over payment services.
“A CBDC could also support households and businesses in making fast, efficient and reliable payments benefiting from a new, innovative, competitive and inclusive payment system,” added Chowla. “This way, a CBDC could also help to meet future payments needs in the digital economy by harnessing the potential of these new forms, new features in money.”
But whilst the central bank sees CBDC as a must, its implementation will need careful monitoring.
“CBDC would involve an outflow of deposits from commercial banks, to the Bank of England's balance sheet and if banks have to compete harder to get deposit funding in a world with CBDC, deposit rate rates may have to increase,” said Chowla.
Funding costs may arise if banks seek more expensive wholesale sources of funding – and this could translate into an increasing price of loans and more expensive credit for household and businesses, with narrowed credit conditions.
Whilst the BoE affirmed its appetite to increase the payment landscape’s resilience, the introduction of a CBDC will have to wait a few years until tests and pilots acquire approval, and international coordination are established.
“There are needs, and there are no presumptions here that the answer to CBDC will be affirmative, but there is a flurry of exploration by central banks,” said Chowla.