The race to launch a Central Bank Digital Currency (CBDC) has become even more heated as numerous use cases of the digital asset continue to emerge. Several central banks across the globe are actively exploring the feasibility of issuing a CBDC and the UK is not left out.
In a recent Treasury Committee hearing, the Bank of England (BoE) deputy governor, Jon Cunliffe stated that the bank is working to issue its CBDC. A CBDC is a digital currency issued by a country’s central bank and is usually in the same denominations as that of the existing physical banknotes. Thus, CBDCs are redeemable for an equal amount in physical cash.
Need for Digital Pound
Cunliffe noted that issuing a digital pound would help the country to implement the latest payment solutions, boosting the UK's ultimate goal of becoming a global crypto hub. He explained that the emergence of crypto payment systems is rapidly revolutionizing how people make payments and issuing a CBDC with the underlying technology of these digital assets " could have huge benefits for the economy and the society.”
He added, "We see the prospect of a very new form of payment system developing. And to assume that people will not use these new technologies to develop new forms of functionalities, I think would be to ignore the evidence that we have seen in the digital revolution. The Bank of England needs to be ready if that happens."
Cunliffe further pointed out that a potential digital pound will open a new frontier to improve how people use money. He said, "This is about opening a new frontier for people to improve payments and the way in which money is used and in how we transact… We want to open up that frontier so that there can be a public settlement asset, a public payment rail."
Outlining the possible use cases of the digital pound, Cunliffe noted that it could be especially useful for making micro-payments. He also pointed out that the digital pound would allow people to programme how, when and on what to spend their money, including automatic tax payments, conditional spending limits, and more.
Inadequate Expertise to Issue a Digital Pound Yet
The BoE deputy governor further revealed that the organization currently does not have the needed technical expertise to issue a digital pound yet. However, he noted that the bank is working toward acquiring the needed skills to move forward with its CBDC development plans.
Cunliffe said, "But to move to the next stage, which would be to build a working prototype, to test in a simulated environment and then you’d be into testing in a live environment, then implementation. This next phase is designed to put us in a position to do that."
According to Cunliffe, the BoE will continue to closely watch how the technology trends evolve to enable it to determine the best approach to take.