The Bank of England’s decision to set up a taskforce to explore the possibilities of a central bank–backed digital currency or crypto-currency is a step in the right direction to make business easier and accountable than they used to be.
The objective was to look at the risks and opportunities involved in creating a new kind of digital money.
Issued by the Bank for use by households and businesses, the digital currency would exist alongside cash and bank deposits, rather than replacing them.
However, no decision has still been taken on whether to have such a currency in the UK.
The taskforce will be led by the Bank’s deputy governor for financial stability, Sir Jon Cunliffe, and the Treasury’s director general of financial services, Katharine Braddick.
Changing consumer habits
The Bank has previously stated it is interested in a central bank digital currency (CBDC) due to “this is a period of significant change in money and payments”.
It was noted that the use of cash in financial transactions has been steadily lessening in recent years, while debit card payments have been on the rise as well as the use of credit cards and direct debits.
Another purpose of issuing a CBDC is as a means by which to “avoiding the risks of new forms of private money creation”. That includes crypto-currencies such as Bitcoin.
“If a CBDC were to be introduced, it would be denominated in pounds sterling, just like banknotes, so £10 of CBDC would always be worth the same as a £10 note,” the Bank said.
“CBDC is sometimes thought of as equivalent to a digital banknote, although in some respects it may have as much in common with a bank deposit.
“Any CBDC would be introduced alongside – rather than replacing – cash and bank deposits.”
Majority of the world’s central banks are exploring the possibility of creating such a currency. The only Central Bank-backed digital currency already in existence is China’s digital yuan, which is currently experiencing public testing.
One of the objectives of the UK taskforce is to monitor international developments, “to ensure the UK remains at the forefront of global innovation”.
The Bank of England also announced the creation of a CDBC engagement forum and a technology forum, and a CBDC unit within the Bank itself, overseen by Sir Jon, although no timetable was announced for the taskforce’s operations.
Wider acceptability of store of value is as important as its sovereign guarantee. This is due to this factor that private currency would never gain the same degree of acceptance as that of a currency backed by a central bank. However, time has come to take the next step in the evolution of currency.
Once test runs were completed and central banks started to come out with digital currencies, the crypto-currency would be mainstreamed, enhancing the efficacy as well as the velocity of business, transactions at all levels of the economy. This, of course, does not mean that physical notes and coins would vanish into thin air in no time.
