Bank of England’s vision for the digital pound differs from China’s model
Bank of England (BoE) Deputy Governor Jon Cunliff said the digital pound is likely to act as a means of managing accounts at the “trade level” rather than the retail user’s currency, Bloomberg News. report,
Cunliffe, who oversees the UK’s CBDC project, told the panel that policymakers are looking at ways to make the digital pound “better for consumers in online trading.”
He expressed concern that criminals could abuse the Chinese-style direct user retail model for money laundering and other illegal activities.
“I think it is very unlikely that any of us will issue a retail CBDC as an bearer product.
It will probably be some form of account-based means. “
There are many unanswered questions about the CBDC
In December 2021, KPMG’s Global Head of Banking and Capital Markets Francisco UríaThe central bank has few options, but said it would respond to the crypto threat by issuing a CBDC. Uria emphasized the inability to control financial stability and loss of sovereignty as a threat posed by private cryptocurrencies.
At that time, the program was run in only seven countries, with pilots in 16 countries. He concludes that the extensive development of the CBDC is “not a natural conclusion.”
Fast forward until now, Atlantic Council CBDC Tracker Shows that 10 countries operate the program and 15 countries are actively piloting. This suggests that central banks are generally hesitant to commit to this idea.
Uria pointed out several concerns, including the extent of cyberattacks and their impact on the retail banking and payment provider sectors.
At a macro level, implementing the CBDC can have a significant impact on the country’s lending, investment and capital flow mechanisms.
Digital pounds are managed by private payment providers
Despite concerns, the BoE is looking for the best way to take advantage of the Digital Pond in an online environment.
In one model, the BoE creates the infrastructure, but the front end is managed by a “private payment provider.”
“Create assets and rails, but the interface with the general public will actually be done by a private payment provider.”
Such systems directly address Uria’s claims about the impact of the CBDC on retail banking and payment providers. However, Cunliffe said the model is not robust and there is an alternative where retail banks tokenize and the BoE backs up those tokens “one-to-one.”
The BoE will publish a consulting paper later this year on the potential impact of the CBDC on the retail banking sector.
When it comes to when the digital pound will go on sale, Cuncliffe said it’s likely to be more than five years away.
