Policymakers around the world are all looking closely at developing central bank digital currencies, as the use of hard cash lessens, but they have yet to decide whether to give a retail CBDC (Central Bank Digital Currency) the go ahead. Even if the decision were to give the green light for it, the roll-out of a CBDC for an advanced economy would not be expected until the second half of this decade, according to Tom Mutton, the fintech director of the Bank of England (BoE).
He said at a Reuters event earlier this month, “We’re not really used to developing consumer products. It will take time to get merchants, retailers and users comfortable with it. It would mean a lot of prototyping and piloting.” Bosses at lenders such as Citigroup and Starling Bank have previously told British lawmakers that introducing a ‘Britcoin’ – a new form of digital money that could be issued by the BoE and used to make direct electronic payments – could seriously harm retail banking business models.
The long development time of a CBDC is partly because most central banks have no consumer-facing products other than banknotes. Mutton said the BoE has limited experience in retail payments. The reasons for banks wanting to develop the digital asset also differ among countries. Former head of the London Stock Exchange, Xavier Rolet has said that there is an urgent need for a well-regulated global digital currency, backed by serious and legally safe financial infrastructure”.
Advisor to the governor at the Bank of Canada, at the same Reuters event, Paul Chilcott said: “The use-case will vary quite a lot by jurisdiction and by the circumstances of jurisdiction. It is not one-size-fits-all.” One of the reasons why Sweden’s central bank was looking at CBDCs was the diminishing use of cash for payment, said Gabriela Guibourg, head of policy and analysis at Sveriges Riksbank. She noted that cash-usage in Sweden has dropped dramatically in the past 10 years, 40 per cent of retail payments in 2010 to only 9 per cent now.
She added: “The main motivation to begin to consider the e-krona was whether we would continue to provide the Swedish population with access to central bank money.” The situation in the UK is similar, with data from the BoE pointing to greater volume and value of non-cash payments. Proposals for a digital version of sterling and other fiat currencies have been gaining momentum, with some projects more advanced than others and central banks hurrying to head off competition from private cryptocurrencies such as bitcoin.
This is among the main issues the BoE is considering. Mutton said the BoE is grappling with how CBDCs would compare with and co-exist in a world with other digital currencies. “The question is: do you want the option of a digital form of payment using central bank money?” he asked.
The BoE and the UK Treasury announced last month that a consultation on the merits of and use-cases for CBDCs in the UK will start in 2022. This will help the BoE and the Treasury decide if they are ready to move onto a “development phase”, which they said would take several years.
A public-private partnership is key, said Guibourg. An ecosystem where third parties such as banks, fintechs and other intermediaries would help innovate and provide consumer use-cases for CBDC platforms, she added. Most central banks are looking to a model where consumers do not directly interface with the bank but with a third party who helps to manage the consumers’ relationship and provides value-add services.
(The writer is our foreign correspondent based in the UK)
