Key takeout
- The Bank of England is reexamining the need for digital pounds as private sector payment innovations progress.
- Retail central banks' global enthusiasm for digital currencies is declining due to privacy concerns and industry options.
The Bank of England (BOE) is reassessing its digital pound plans. Authorities are questioning whether launching new forms of money is worth the effort, especially as the private sector is rapidly moving forward with payment technology.
The Bank of England has been exploring the idea of a digital pound called “Britcoin” as a government-supported digital version of the British pound.
However, according to Bloomberg, authorities have also personally urged the banking industry to prioritize payment innovations that can achieve similar results without the need to issue retail CBDCs.
BOE has not completely abandoned its CBDC plan. Banks aim to prepare to launch digital pounds when needed, but can cut back on efforts if private companies continue to advance electronic payment technology that offers comparable benefits.
During a Parliamentary hearing on Tuesday, Bank of England Governor Andrew Bailey expressed doubt about the need for the digital pound. He said it would be difficult to justify introducing a new form of money if it proves successful in its ongoing collaboration with commercial banks.
“I think that's a smart place,” Bailey told the Finance Committee. “If that's a success, I wonder why we need to introduce a new form of money.”
The central bank and government will make a final decision after completing the current design phase.
This shows a shift from past years when officials from the Bank of England and Treasury saw the digital pound as “highly likely.”
The change comes amid waning the global momentum of state-backed digital currencies.
In the US, the Trump administration has stepped up efforts to block the Federal Reserve from issuing digital dollars. During “Crypto Week,” the House of Representatives passed the Anti-CBDC Surveillance Act.
The central bank of South Korea has also suspended its digital currency pilot program.
In contrast, the European Central Bank continues to pursue the digital euro.
Recent BOE research shows that the benefits of CBDC launches have been reduced. High-ranking officials, including Lieutenant Governor Sarah Bredon and the Director of Financial Services at the Department of Treasury, reduced involvement in the CBDC Engagement Forum and sent lower-ranked staff instead.
The project faces challenges including privacy concerns and fears about the potential destabilizing effects of investors rushing to state-backed digital currencies during the crisis.
Bailey shows support for wholesale CBDCs for financial institutions, despite being skeptical about the retail version. However, he has expressed concern about foreign stubcoins that have gained popularity in the UK and could undermine trust in traditional currencies.
