Central Bank Digital Currency (CBDC) projects globally are advancing in full force. CBDCs are a centrally issued and regulated form of digital currency. Nations see them as a way to curb the use of unregulated and decentralised cryptocurrencies, and a means to better control criminal activity such as money laundering.
2022 will see further progress made by China, a leading player in CBDCs, as well as secondary jurisdictions such as Sweden and the Bahamas, which have CBDC projects in advanced stages of development and trials. In London, there is talk of a GBP CBDC, playfully named “Britcoin”. However, unless the UK Government changes the way it is approaching the issue, it is unlikely that Britcoin will be the success it is hoping for.
One reason for this is that, so far, the Government and the Bank of England (BoE) have almost exclusively focused on the technology that would support a CBDC. In April 2021, the BoE announced the creation of a CBDC taskforce, prioritising design and potential use cases. Alongside, it has launched a CBDC sandbox, which several companies, such as my own, L3COS,
and R3 are using to develop technology that would underpin the CBDC.
While this is all welcome progress, this focus on technology alone will seriously hinder the UK’s race towards a functioning digital economy in 2022. If two other pillars that are crucial to a successful CBDC launch – infrastructure and legislation – aren’t addressed soon, this high-tech CBDC will be doomed to redundancy.
That proper infrastructure and legislation aren’t even being considered became clear when the UK’s Chancellor of the Exchequer, Rishi Sunak, spoke about the Government’s supporting “innovation and technology” to create an “innovative payments landscape”. As The WIRED World went to press, he had yet to mention anything about robust digital legislation, such as digital governance and privacy, which are essential for any digital economy-related project to be successful. Additionally, he has made clear that Britcoin will not replace cash – instead, both a CBDC and fiat currency will be in circulation at the same time. As happened with Brexit, we are likely to have a transition period to migrate cash to CBCD, eventually removing the risks associated with cash. The UK is hell-bent on creating the most secure, efficient and technologically advanced CBDC in the world, without much thought behind how it will be integrated into every level of society – but that interoperability is key.
The lack of planning around infrastructure will also make enemies of the commercial banks. While commercial banks in China are being used to distribute the e-Yuan and form an integral part of its infrastructure, there has been little talk so far about the role of commercial banks in the UK’s new digital economy – assuming of course there is one. A UK CBDC is a threat to the banks’ existence, so they will likely oppose the idea both with lobbying and verbal protest. In reality, though, there is nothing they can do. The commercial bank lobby in the UK is frail compared to the US and they would also need to drastically change their business models if they wanted to be a part of the CBDC infrastructure.
A UK CBDC is planned, but the lack of a holistic approach by the government and the BoE will make it either irrelevant, or arriving far later than in the rest of the world.