Bank of England releases statement on central bank digital currency

According to the Bank of England statement, the Bank of England and the UK Treasury announced today the joint creation of a Central Bank Digital Currency (CBDC) Working Group to coordinate the exploration of a potential UK CBDC. CBDC will be a new type of digital currency issued by the Bank of England for use by households and businesses. It will coexist with cash and bank deposits, rather than replace them.

The government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK and will engage extensively with stakeholders on the benefits, risks and feasibility of doing so.

The taskforce aims to ensure that the UK authorities take a strategic approach in line with their statutory objectives when exploring CBDC and to promote close coordination between them. The taskforce will: coordinate the exploration of the objectives, use cases, opportunities and risks of a potential UK CBDC; guide the assessment of the design features that a CBDC must display to achieve our objectives; support a rigorous, consistent and comprehensive assessment of the overall case for a UK CBDC and monitor international CBDC developments to ensure that the UK remains at the forefront of global innovation.

The task force will be co-chaired by Jon Cunliffe, deputy governor for financial stability at the Bank of England, who will oversee the work of the CBDC unit, and Katharine Braddick, director of financial services at HM Treasury. Other UK authorities will participate in the task force as appropriate.

The Bank of England also announced today the creation of the following institutions:

A CBDC Engagement Forum to engage senior stakeholders and gather strategic input on all non-technical aspects of a CBDC. The forum will play an important role in helping the Bank and HM Treasury understand the practical challenges of designing, implementing and operating a CBDC. It will consider issues such as, but not limited to, the “use cases” for CBDC, the functional requirements of CBDC users, the roles of the public and private sectors in a CBDC system, financial and digital inclusion considerations, and data and privacy implications. Members will be drawn from financial institutions, civil society groups, merchants, corporate users and consumers.

A technical forum for CBDCs to engage stakeholders and gather input on all technical aspects of CBDCs from different expertise and perspectives. The forum will play an important role in helping the Bank understand the technical challenges of designing, implementing and operating CBDCs. Members will be invited by the Bank and selected from financial institutions, academia, fintechs, infrastructure providers and technology companies. The Bank of England also announced that it will set up a CBDC unit. This new unit of the Bank of England will lead its internal exploration around CBDCs. It will also lead the Bank's external engagement on CBDCs, including with other UK and international institutions.

The United Kingdom is the latest country to join the global race for central bank digital currencies.

According to CNBC, British Finance Minister Rishi Sunak said at a financial technology industry conference on Monday: "We will set up a new working group between the Treasury and the Bank of England to coordinate the exploration of potential central bank digital currencies."

The currency would be "a new type of digital money issued by the Bank of England" that would exist alongside cash and bank deposits, rather than replace them, the BoE said in a separate statement.

The British government has not yet decided whether to launch a digital version of the pound, but said that if it does, it will explore the "objectives, use cases, opportunities and risks".

Currently, several central banks are racing to develop their own central bank digital currency (CBDC) strategies.

The rise of bitcoin and other cryptocurrencies, and a broader trend of declining cash use, has given new impetus to the moves. Bitcoin surged to a record $64,829 last week ahead of a much-anticipated listing on cryptocurrency exchange Coinbase. But the world’s most popular digital currency fell sharply over the weekend amid concerns about regulation.

Another factor driving central banks to work on CBDCs is private stablecoin projects, such as the Facebook-backed Diem Association and a controversial token, Tether. These currencies attempt to peg their market value to some external reference, such as the U.S. dollar, to avoid the price volatility common in most cryptocurrencies.

China appears to be ahead of other major countries in its CBDC efforts. The People’s Bank of China has conducted a series of tests of the digital currency in major cities, and a senior official said on Sunday that the central bank could trial the digital yuan with foreign tourists at the 2022 Winter Olympics in Beijing.

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