The Bank of England is moving ahead with its plans to develop a digital currency, despite confusion over the reasons for doing so.
In a speech given at the Innovate Finance Global Summit in London, published yesterday (April 17), deputy governor for financial stability at the UK central bank Jon Cunliffe outlined the areas in which the tokenisation of money is being explored.
Cunliffe acknowledged that forecasting the direction and pace of technological innovation is a “hazardous enterprise”, but that the BoE needs to anticipate these in order to be best placed to manage the associated risks and encourage the efficiency created by these developments.
He said the recent trend away from physical cash issued by the central bank and towards electronic money issued by private banks is clear, and is expected to continue.
He cited three reasons for this, including the increased digitisation of everyday life, further developments in infrastructure, payment systems, as well as developments in crypto technology.
The BoE is currently exploring four areas in which the tokenisation of currency, where an issuer creates digital tokens on a distributed ledger or blockchain to represent physical or digital assets, could be increasingly relevant, Cunliffe said.
The first is stablecoins used for payments, he said, with the second being the tokenisation of commercial bank deposits.
The third, and most controversial, is the creation of a central bank digital currency.
This would be a new form of money issued by the Bank of England using blockchain technology and available for households and businesses to use.
It would exist alongside cash and bank deposits, instead of replacing them.
A cross-party House of Lords committee said last year there is no convincing case for introducing the currency.
The Treasury and BoE have previously announced that the currency could be introduced in the next decade.
In his speech, Cunliffe outlined the benefits of a digital pound.
“In the world of wholesale financial transactions, for example, [tokenisation] may make it possible to cut out intermediaries and make trading and settlement instantaneous,” he said.
“In retail payments, for example, they may enable functionality like micro-payments and more flexible programming of money for everyday uses.
“Changes in how we pay for things and what type of money we use...is a fundamental issue for the Bank of England – as a regulator, as the provider of the central high value payment rails and the issuer of the highest quality, public money in the UK.”
In a separate speech, Andrew Griffiths, economic secretary to the Treasury, said private wholesale digital currencies are likely to come to market first.
“We are already creating the legislation to enable those which are fiat backed and used for settlement in the current financial services bill going through parliament right now,” he said.
