Bank of England launches debate on CBDC and its contours

Like other central banks, the BoE opens a reflection around the digital currency or CBDC. Such an electronic and sovereign currency would have advantages, recognizes the Bank of England. No decision was made, however.

Faced with a constant decline in the use of cash and the growing privatization of means of payment, more than a dozen countries are studying or experimenting with central bank digital currencies (CBDC).

This is particularly the case of the Bank of England. The latter officially opens the debate through the publication of a working document on CBDC. No question however for the BoE to settle this debate alone.

28% of payments made in cash

The central bank thus invites the British to react to the advisability of creating a digital book, electronic counterpart to the paper book whose use is in clear decline. The BoE recalls that cash only represented 28% of payments in the country in 2018. Five years earlier, this share was still 52%.

The public, but also "technology suppliers, payments sector, financial institutions, academics and other central banks and public authorities" are therefore invited to submit comments and ideas regarding the CBDC.

The BoE specifies however that the decision to create or not an e-Book will not be up to it. "Any decision to introduce a CBDC would involve Her Majesty's government, with the participation of the relevant regulatory authorities, Parliament and society at large. "

Because the goal for the central bank of our neighbors is at this stage to determine a " appropriate design "For a CBDC and assess" whether the Benefits of the CBDC Outweigh the Risks. However, the BoE has already identified several advantages in terms of monetary and financial stability.

Benefits greater than risk?

Among the opportunities listed, the bank highlights in particular the possibility of protecting itself from the risks arising from the creation of new forms of private currencies, such as stablecoins, and foster competition, efficiency and innovation in payments.

However, to achieve these objectives, several technological options are available to central banks. Decentralization, specific for example to Bitcoin, is one. However, it is not essential for a CBDC, even if it could have advantages.

The BoE thus identifies four main technological building blocks which are therefore decentralization, the cryptography, the data sharing and the programmability ", All of which are specific to the blockchain and smart contracts.

The debate opens in England and will not be decided in a rush.

The CBDC would also introduce significant political challenges and risks that need to be carefully considered and managed, ”warns the BoE.