CBDC Readiness: A Work in Progress

The United Kingdom is treading cautiously in the waters of central bank digital currency (CBDC) issuance. According to Mike Cunliffe, deputy governor of the Bank of England, the country is not quite ready for this digital leap. While there’s a confident outlook suggesting over a 50% chance of rolling out a CBDC, Cunliffe acknowledged the current technical prowess isn’t at the level required to make it happen effectively.

Future Plans for the Digital Pound

In his address during the treasury select committee hearing, Cunliffe revealed that the next phase involves gathering the necessary expertise and teaming up with private sector partners to test a potential digital pound. “To move to the next stage, which would be to build a working prototype… in a live environment, then implementation,” he said, emphasizing a methodical approach to development.

Understanding the Digital Pound’s Structure

The deputy governor stressed that the design and structure of a digital pound would depend significantly on its intended function. He explained that the primary aim of the CBDC would likely be to offer a digital equivalent to Bank of England notes for everyday transactions. He firmly stated, “We didn’t want a system with two forms of Bank of England money circulating, remunerated and unremunerated.” Safety and clarity in currency form remained paramount.

Potential Features of the CBDC

• Micropayments: A highlighted feature is the ease of making tiny payments, which could revolutionize how we engage with content online. Imagine paying a few pence for that article you just can’t resist, without needing a whole subscription!
• Enhanced Payment Systems: Cunliffe described the CBDC as a key to opening new frontiers in payment methods, similar to how Apple’s iPhone app store overhauled mobile applications.

Government’s Involvement in CBDC Development

Recent developments have seen the U.K. government taking a more active role in the CBDC agenda, with positions opening in January 2023 for leadership in the digital pound project. This move suggests that the government recognizes the growing importance of digital currencies globally.

Interestingly, while the Bank of England’s governor, Andrew Bailey, previously expressed skepticism regarding the immediate necessity for a CBDC, sentiments are clearly shifting. Meanwhile, across the English Channel, European finance ministers are backing a retail version of the digital euro with renewed vigor.