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A new hire at the Bank of England (BoE) has said the UK needs a "national conversation" on central bank digital currency (CBDC) — an area that will be a contentious issue in 2024.
Alongside this month’s Cabinet reshuffle, covered here by Vixio, the BoE has appointed Sarah Breeden as its new deputy governor for financial stability.
Breeden took up the post on November 1 and will serve for a term of five years. She will also sit on the BoE’s Financial Policy Committee (FPC), Monetary Policy Committee (MPC) and Prudential Regulation Committee (PRC).
In a statement, HM Treasury said that Breeden will play a “key role” in providing a “link between financial stability and monetary policy”.
Chancellor Jeremy Hunt added that Breeden will bring “extensive experience” to the role, having served in numerous bank and deposit supervisory roles since joining the BoE in 1991.
Sir Jon Cunliffe, the outgoing deputy governor, had served two back-to-back terms since 2013, and will now part ways with the BoE.
CBDC a priority issue
In his final speech as deputy governor, Cunliffe talked about Facebook’s "Libra moment" in 2019 and how it still influences payments regulation today.
Facebook’s announcement that it planned to launch a multi-currency stablecoin “galvanised more urgent action” from regulators, said Cunliffe, and this can be seen in three areas.
One is the G20 roadmap to improve cross-border payments, one is central bank exploration of CBDCs and the other is the need to regulate payment stablecoins.
In February, the BoE published a consultation outlining its view that the UK is “likely” to need a CBDC by the “end of the decade”.
Cunliffe insisted that the consultation was not a proposal to introduce a CBDC, but simply an exploration of how it might look if one was introduced. This will be followed by a decision on whether to launch one in two to three years’ time.
“We envisage the Digital Pound as a partnership with the private sector — a so-called ‘platform model’,” said Cunliffe.
“The BoE would provide the Digital Pound and the central infrastructure, including the ‘core ledger’.
“Private sector firms — which could be banks or approved non-bank firms — would provide the interface between the BoE’s central infrastructure and users by offering wallets and payment services.”
The consultation offered two main reasons for a potential CBDC: to stimulate innovation and fair competition in digital money; and to ensure that the BoE retains its role as monetary anchor.
“Digital marketplaces have a tendency to concentration, as do payment systems,” said Cunliffe.
“This may be a particular concern if ‘bigtech’ firms enter more deeply into payments and money.
“Competition and innovation may therefore be enhanced by providing a public alternative that allows private firms to offer services exploiting the new functionalities.”
‘Strong’ reaction from the public
The consultation stimulated a “strong” reaction from the public, said Cunliffe, with more than 50,000 responses received.
The majority expressed concerns about privacy, programmability and the decline of cash, while a minority made comments on the proposed platform model.
When asked about the consultation in a Treasury Committee hearing prior to her appointment, Breeden acknowledged that the BoE had received an “awful lot” of responses from the public.
She added that the BoE is seeking to “publish a summary” of those responses by the end of 2023, but was unable to say when a full consultation response would be published.
“We need to start a national conversation, because while I am supportive of that technology, there is a lot of concern about privacy,” she said.
“We are at the start of the debate on how you manage the privacy challenges and the role of the state.”
Fears of Chinese-style surveillance
Danny Kruger, Conservative MP and member of the Treasury Committee, pushed Breeden to “give assurances” that a UK CBDC would not be used by the state to snoop on citizens.
“Nobody in this country wants there to be a programmable digital currency like in the Chinese system, where the government can basically look at what you are spending and determine what you can spend it on,” he said.
“How can we ensure that there is a sufficient firebreak in the tech to ensure that we are not empowering the state beyond the point that any of us would wish to go?”
Breeden responded that the BoE is still at the “technical design point” and has not yet handled those issues.
“What I can say is that I recognise these privacy concerns about programmability as real concerns,” she said.
“Terms and conditions will be set in legislation. We need to demonstrate that whatever it is that parliament has decided is the right boundary for privacy is the one that we will deliver.”
The conversation will continue in 2024
As can be seen from both Cunliffe's and Breeden’s statements, the BoE is aware of the level of opposition to CBDC among the public.
With that being so, one high-level source who spoke to Vixio anonymously said that the issue is unlikely to “move the political dial” anytime soon.
The source also suggested that the BoE’s CBDC plans are really about “killing stablecoins”, should they ever gain a serious foothold in payments in the future.
“The plan is to kill off stablecoins and keep CBDC for optionality, not that anyone has worked out any real use case for it,” the source said.
