On November 9, 2021, the Bank of England, and HM Treasury announced that they had taken the next step in the launch of a CBDC. According to the announcement, HM Treasury and the BoE would launch a formal consultation in 2022.
Functions Of The Consultation
The formal consultation will assess the feasibility of launching a CBDC for the UK. It will look into the merits of launching such a project in the UK as well as the technology model to be used. The consultation will look into the high-level design features, implications for businesses and users, benefits, and what more needs to be done. This consultation will be part of the ‘research and exploration’ phase that will help to inform policy development in the coming years.
Introduction Of A CBDC In The UK
The announcement made it clear that no formal decision had been made regarding the introduction of a CBDC in the UK. The consultation will help to decide whether the UK should move into the development phase of this major national infrastructure project. If the outcome from the development phase concludes that there is a case for a UK CBDC and that it is technologically, and operationally robust, the earliest date for such a launch would be after 2025.
The Goal Of A UK CBDC
If the UK central bank were to launch a CBDC, the bank has made it clear that it would be used for everyday transactions by households and businesses. The BoE has also made it clear that a CBDC would not replace traditional currency but would work alongside it. In line with this goal, the BoE has been consulting widely with civil society, academia, and industry to receive their technical and strategic input.
The UK has been mulling plans for a CBDC as far back as March 2020. However, concrete plans for a CBDC began in April 2021 when the BoE announced the launch of a CBDC task force. At the time, the bank revealed that it would create a CBDC Unit. The unit would lead internal and external engagements around CBDC. Before that, the bank had launched a discussion paper on CBDCs. Back in September, the bank announced membership for the engagement and technology forums for its CBDC efforts.
What The Leaders Had To Say
Commenting on the announcement by the BoE, John Glen, the Economic Secretary to the Treasury stated that:
“This consultation will begin an open discussion on the role a UK central bank digital currency might play in the UK. He added, “I’d encourage everyone to contribute to the discussion so we can explore the opportunities this could bring, as well as understanding any risks it may pose.”
Jon Cunliffe, the Deputy Governor for Financial Stability, also commented on the announcement, he stated that:
“The plan to publish a consultation next year on CBDC is a crucial step in our policy development, especially as we further our thinking on the pressing issues at hand. What it will do is provide a platform for interested parties and relevant groups to engage with the key questions on the merits of CBDC, and whether the public sector should advance to a development phase.”
CBDC Development around the World
Thus far, China has emerged as a clear leader when it comes to a CBDC. The nation, which is the second-biggest economy in the world, had already made headway when it comes to a CBDC. Trials are already taking place in various cities in China. Hong Kong has also made advanced plans for a CBDC. Another nation that is in the advanced stages of a CBDC launch is South Korea. The country is currently running a 22-month pilot. In the US, there are no such plans, the Federal Reserve remains reserved when it comes to the idea of a CBDC.
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