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Hopes of a British central bank digital currency (CBDC) were dealt a blow by the governor of the Bank of England, Andrew Bailey, who said he “remained to be convinced” of the need for one.
Touching on digital payments in a speech at Mansion House, Bailey said that a key element of the central bank’s job in this area is to ensure that stablecoins that purport to be money are safe.
“There may well be a role for stablecoins going forward, but I don’t see them as a substitute for commercial bank money,” he said.
He added: “Perhaps there may also be a role for retail central bank digital currency, but I remain to be convinced why the natural next step is to create a new form of money rather than put digital technology into retail payments and bank accounts.”
However, Bailey struck a much more confident note about the potential of digital technology to lower transaction costs, reduce fraud, improve the functionality of payments and thereby reduce late payments.
He noted that in recent months the Bank had introduced the Real-Time Gross Settlement (RTGS) platform, which underpins the settlement of wholesale and retail payments in the UK, creating opportunities for innovation in payments.
Innovation urgently needed
Bailey stressed that there is an “urgent need” for innovation in the payments industry, and said that replacing ageing infrastructure is a priority to support the economic growth agenda.
To that end, he said, the Bank will work in collaboration with the authorities and industry to design and deliver the next generation of UK retail payments infrastructure.
“This means a system of retail digital payments that keys off each of our bank accounts,” Bailey said.
“There is a lot of debate globally at the moment on the future of payments – both domestic and cross-border. Today, most payments are made from bank accounts in what we call commercial bank money. This arrangement ties payments directly to the creation of credit in the economy.”
Bailey’s remarks were made on the same day that the UK’s finance minister, Rachel Reeves, delivered the Chancellor’s annual Mansion House speech, in which she unveiled reforms intended to accelerate upgrades to the country’s payments infrastructure.
As part of the reforms, the government’s National Payments Vision (NPV) has entered a new phase, with an updated delivery model announced by the Payments Vision Delivery Committee.
The initiative sets out how the UK will develop a modern retail payments infrastructure, with a strong emphasis on public-private collaboration.
The new model features a Retail Payments Infrastructure Board, chaired by the Bank of England, to translate strategy into design.
Mixed feelings
Bailey’s cautious approach to CBDCs stands in marked contrast to the enthusiasm of his EU counterparts for the digital euro.
As covered by Vixio, the European Central Bank (ECB) is drafting a new digital asset scheme rulebook as it lays the groundwork for the introduction of a digital version of the euro.
CBDCs are increasingly moving into the financial mainstream, with the EU one of a number of jurisdictions, including Australia, Israel and Papua New Guinea, that are considering adopting digital currencies in various forms.
However, feelings about them remain mixed, with President Trump firmly ruling out a US CBDC.
