The Bank of England’s executive director for markets Andrew Hauser acknowledged that a CBDC would be compatible with the central bank’s operations. He added that it would also be the first new type of central bank liability in centuries. “The dog may be old, but it can still perform new tricks,” Hauser said ahead of a discussion hosted by the Federal Reserve Bank of New York.
England’s central bank already considers sterling reserves that commercial banks hold with it to be a form of digital currency. A fully-fledged CBDC would therefore provide a broader form of public access to this system, which could potentially reduce banks’ role in day-to-day payments. The BoE has previously said that any CBDC would be equivalent in value to sterling banknotes and not replace cash.
“By themselves, balance sheet considerations do not obviously present any ‘redline’ arguments against CBDC adoption,” Hauser said. “The use of the central bank balance sheet to provide state-backed transactional money is one of our most longstanding functions.”
CBDC considerations
While the BoE has yet to make any formal announcement about officially developing a CBDC, earlier this year it entered into a partnership with the Massachusetts Institute of Technology Media Lab Digital Currency Initiative (DCI). The partnership is focusing on exploring potential technical challenges, trade-offs, opportunities, and risks involved in designing a CBDC system.
After encouragement from the Chancellor of the Exchequer Rishi Sunak, the country’s finance minister, about a possible ‘Britcoin,’ the BoE is expected to consider issuing a centralized currency later this year.
Many Western central banks have been motivated to develop a CBDC to counter the prospect of a major tech company creating its own digital form of payment. Such a bypass of the regulated financial system has raised concerns about privacy and financial stability. Hauser emphasized that any company considering this should expect to be regulated to the same standards as a bank.
