Chancellor Rishi Sunak has revealed a new taskforce will explore the adoption of a central bank digital currency (CBDC) in the UK.
The Central Bank Digital Currency Taskforce, led by HM Treasury and the Bank of England, will examine the potential economic benefits and possible risks of a government-backed digital currency, which Sunak dubbed ‘Britcoin’ on social media.
Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, will co-chair the taskforce alongside Katharine Braddick, HM Treasury’s Director General of Financial Services.
Speaking at Fintech Week, Chancellor Sunak said the taskforce will begin initial “exploratory work” to establish how digital currency would benefit the country.
“We’re launching a new taskforce between the Treasury and the Bank of England to coordinate exploratory work on a potential central bank digital currency,” he told delegates at Fintech Week.
Sunak added that the government hopes to capitalise on opportunities created since the UK’s departure from the European Union and “push the boundaries of digital finance”.
“The UK is already known for being at the forefront of innovation, but we need to go further,” he said.
“The steps I’ve outlined today, to boost growing fintechs, push the boundaries of digital finance and make our financial markets more efficient, will propel us forward.”
— Rishi Sunak (@RishiSunak) April 19, 2021
What is a Central Bank Digital Currency?
A CBDC would be a new form of digital currency which the Bank of England would issue and regulate for use by businesses and households.
Retail CBDC can be held directly by citizens and businesses. However, interbank – or wholesale – CBDC is limited to use by financial institutions and wholesale entities for interbank payments and financial settlement processes.
Britain’s hypothetical new digital currency would, the BoE explained, work alongside cash and bank deposits rather than replacing them outright.
Cash use has been decreasing steadily over the past decade, with BoE stats showing cash use in the UK dropped from 63% of all payments in 2006 to just 28% in 2018.
Since the onset of the coronavirus pandemic, cash use has decreased further while the use of debit cards, credit cards and smartphone wallet payments has risen.
The Government and BoE insisted that no decision has been made on whether to introduce a digital currency in the UK, but the new taskforce will “engage widely” with stakeholders to assess the benefits, risks and the practical challenges associated with its introduction.
Britain isn’t alone in exploring the potential adoption of digital currencies. In China, a digital yuan currency is currently going through public testing.
Additionally, the European Central Bank recently revealed it was assessing the benefits of using electronic cash alongside conventional currency.
Globally, analysis from PwC shows the race to adopt central bank digital currencies is heating up. More than 60 central banks have begun assessing the potential benefits since 2014, PwC said, and Britain is “leading the way” in Europe in preparing for the adoption of central bank digital currencies.
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Haydn Jones, UK Blockchain & Crypto specialise at PwC UK, said the emergence of CBDC is a “big milestone in the evolution of money”.
“It’s a true game-changer, providing access to alternative payment solutions for citizens and corporates, as well as reinventing financial market settlement and interbank monetary transactions,” he said.
Jones added that the general public would likely be the “biggest beneficiaries” of any CBDC introduction.
“For the first time they will have access to a digital form of central bank money. And as sovereign digital cash, it also contributes to further financial inclusion efforts by contributing to modernise the current monetary system while attempting to bridge the gap with the unbanked,” they said.