UK considers creating central bank digital currency

The Treasury and Bank of England announced on Monday a joint task force to evaluate the creation of a central bank digital currency to future proof sterling against cryptocurrencies and improve the payments system.

Joining a worldwide fashion for investigating new central bank currencies, chancellor Rishi Sunak said that Britain “need[ed] to go further” to stay at the forefront of financial innovation.

A central bank digital currency has many definitions. The unifying features would be that it was a digital payment system, separate from commercial banks and large payments companies, which use national currencies, such as Visa and Mastercard.

Different versions either envisage individuals having digital accounts at the central bank or a more limited digital token, serving the same purpose as notes and coins in the financial system.

The benefits include a potential lowering of transaction costs, ensuring that people are protected from financial instability of private payments systems potentially failing and ensuring that central banks retain control over monetary policy against the remote possibility that payments might migrate into cryptocurrencies over which they have no leverage.

The BoE said that it and the Treasury had not made a decision to issue a central bank digital currency and the task force would examine a wide range of issues including whether it served a valuable purpose.

It published a discussion paper on digital currencies last year, noting that it would be issued in sterling, would sit at the interface between cash and private payments systems and would not necessarily be based on distributed ledger technology.

It would not be a crypto asset, such as bitcoin, which can increase or decrease in value compared with national currencies. The BoE added that cash use could fall quickly with debit card use overtaking cash as a payments technology in 2018.

Many central bankers have acknowledged that there are some big risks to overcome with the introduction of a central bank digital currency. The BoE would potentially need to comply with know your customer rules to prevent the currency’s use for terrorist financing or money laundering and its existence could undermine the health of commercial banks, removing deposits on which they rely.

The BoE said the task force would examine these opportunities and risks, evaluate alternative technologies and examine developments in other countries. It would then provide “a rigorous, coherent and comprehensive assessment of the overall case for a UK central bank digital currency”, it said in a statement.

The task force will be co-chaired by Jon Cunliffe, deputy governor for financial stability at the BoE, and Katharine Braddick, the Treasury’s director-general of financial services. It has not yet set a timescale for any decisions or the introduction of a digital currency.

Most Related Links :
todayuknews Governmental News Finance News

Source link

Back to top button