Finance

Bank of England launches Treasury-backed taskforce for a UK digital currency

The Bank of England and the Treasury have announced the creation of a joint taskforce to explore the creation of a UK central bank digital currency.

The Bank said the CBDC would be “a new form of digital money issued by the Bank of England and for use by households and businesses”. As a stablecoin, the digital currency would likely be pegged to the price of sterling as a means of limiting its volatility.

The Bank added that if developed, the coin would be intended for use alongside cash and bank deposits, rather than replacing them.

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The taskforce will explore the potential objectives, use cases, opportunities and risks of a CBDC in the UK, as part of a “rigorous, coherent and comprehensive” overall assessment of the case for a coin.

The group, co-chaired by Bank of England deputy governor Sir Jon Cunliffe and the Treasury’s director general of financial services Katharine Braddick, will also monitor international developments in the space.

Fnality, a private sector stablecoin initiative backed by UBS, Santander and Lloyds Banking Group among others, said it had already submitted an application to the Bank to be considered for access to potential account settlement structures.

China has ploughed ahead with intentions to create a digital yuan, while the European Central Bank is mulling proposals for a digital euro. In the US, the Federal Reserve is currently running experiments using a CBDC with several universities.

The UK is fifth in the world and ahead of Europe in plans to introduce a wholesale digital currency for interbank lending, research by PwC found on 19 April. Thailand and Hong Kong ranked in joint first, followed by Singapore and Canada.

State banks have been responding to advances in so-called stablecoins in the private sector, such as Facebook’s Diem, formerly known as Libra. The digital currency, which was expected to be launched as early as January this year, has faced major pushback from global regulators over security and financial stability concerns.

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The Bank will also set up a new division internally to explore CBDCs, leading on its engagement in the area with other UK and international authorities and led by Cunliffe.

Two forums on strategic engagement and technology will be established to gain perspectives from senior stakeholders on the potential for a UK CBDC. They will consider issues such as the role of the private sector in a CBDC system, as well as data and privacy implications.

Bank of England governor Andrew Bailey said in September that any form of stablecoin must have “equivalent standards to those that are in place today for other forms of payment types, and the forms of money transferred through them”.

To contact the author of this story with feedback or news, email Emily Nicolle

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