Bank of England pressing ahead with preparations for digital currency

Bank of England governor Andrew Bailey has revealed that the central bank is getting ready for a retail CBDC in case commercial banks fall through.

During a speech over the weekend, governor Andrew Bailey said that the Bank is justified to prepare for a digital currency because it has “not yet seen enough evidence” that the innovation will happen in commercial banks.

At the Group of Thirty’s 39th Annual International Banking Seminar in Washington, the governor told industry figures that while commercial banks are the “best home” for CBDC innovation, if for some reason this is unlikely to happen, central banks must decide whether they are the “only game in town”.

“As central banks, we should be thoroughly engaged to encourage, and if necessary, provide such innovation – but there is no good reason to be proprietorial on this,” continued Bailey.

He said that in the journey to modernising money and payments, the potential of digital technology should be harnessed because to do otherwise would “risk a failure of imagination”.

The Bank first published a consultation paper exploring the need for a digital pound in early 2023.

In May this year, the Bank said it hadn’t yet made a decision on whether it would introduce a digital pound.

The digital pound is currently in a design phase which will explore the technology and policy requirements over the next two to three years. During this phase, the organisation is testing how it could work in the real world.

The earliest the central bank would introduce a CBDC would be the second half of this decade.

Bailey’s comments come as a new study finds that by 2031, the number of global payments using CBDCs could reach 7.8 billion, up from 307.1 million in 2024.

According to figures from Juniper Research, this 2,430 per cent growth will be driven by central banks seeking to “safeguard monetary sovereignty” in the face of card-network dominance and growing stablecoin popularity.

The research forecasts that through the use of CBDCs and stablecoins, cross-border payments will save $45 billion by 2031.

“Emerging payment technologies, like CBDCs and stablecoins, will streamline international payments,” said research author Lorien Carter. “These innovative technologies will help grow the digital economy and increase global financial inclusion by reducing the reliance on the US dollar for international settlements”.