For central banks, there’s a long road between mulling a central bank digital currency (CBDC), defining the ramifications and launching it.
It could take years, in fact. And meanwhile, China, among the first major world economies to come out of the gate with its digital yuan, is continuing to gain ground.
In demonstration of the complexities involved and the gestation period that stretches ahead, the Bank of England and the Treasury said on Tuesday that they will begin a consultative period next year to explore what it will take to issue a CBDC in the United Kingdom.
The central bank said the CBDC would exist as “a new form of digital money issued by the Bank of England and for use by households and businesses for their everyday payments needs. It would exist alongside cash and bank deposits, rather than replacing them.”
The consultation will explore the “merits” of working further on operational and technological models for a CBDC — and the ultimate benefits and implications.
The Bank of England and Treasury emphasized that “No decision has been made on whether to introduce a CBDC in the U.K., which would be a major national infrastructure project.” But the eventual launch, if any, would not come until the second half of the decade at the earliest.
While Britain is taking a cautious approach and attempting to temper expectations, China is pulling ahead of the pack by default. As has been widely reported, it’s pushing for wider distribution and consumer exposure to the digital yuan ahead of the Winter Olympics — scheduled for February 2022 in Beijing.
In the meantime, the United States is lagging, too (relatively speaking). The Federal Reserve has been promising the delivery of its own report on CBDCs for quite a while. It was slated to come by the end of third quarter — and we are well past the end of September.
Among the central questions that must be addressed by any central bank examining a CBDC: Who can use it? When? And just where do cryptocurrencies and stablecoins fit within the space? The longer figuring this out takes, the more firmly entrenched consumers may be with using other cryptos (unless governments ban them out right, which is pretty much the case in China).
The embrace of crypto continues to be a bit volatile: One need only look to Coinbase’s 29% volume drop in its most recent earnings report (amid a 37% drop in trading seen by the broader crypto market) to see that.
But the field, as measured in terms of payment options — from bitcoin to fiat-based stablecoins to crypto-enabled debit and credit cards — will be undoubtedly more crowded. And that might make the path toward CBDC dominance all the less assured.