How will Central Bank Digital Currencies (CBDCs) take shape?

I read recently, the Bank of England and HM Treasury shared news that they will be undertaking a joint consultation exploring the potential role of a digital pound within the UK and key features of what this model could look like.

The digital pound would be established as a new form of digital money that would be adopted by both businesses and households to facilitate payments, which could be something as normal as an electricity bill or a supermarket shop. In a video shared by the Bank of England, it was disclosed that digital currency is necessary in response to the digital transformation of society that has taken place over the last decade. The digital pound would not replace cash and would instead sit amongst a wider landscape of money and payments. It would be a central bank digital currency or CBDC issued by the Bank of England and not the private sector, therefore differing from crypto assets and stable coins.

Whilst the joint consultation is in early days, both the British government and the Bank of England believe that undertaking further preparatory work within a set out four month period is justified as a way to ‘appropriately respond to the emergence of new technologies, international developments and fresh opportunities’.

It is not just the Bank of England who is exploring the role of a digital currency within modern day society of course. Back in October 2020, the European Central Bank issued their ‘Report on a Digital Euro’ which explored introducing a similar concept to the UK. In the report, it was stated that ‘a digital euro would create synergies with private payment solutions and contribute to a more innovative, competitive and resilient European payment system’. It is worth noting that at the time of writing in 2022, the report stated that it was too early to commit to a specific design of a digital euro.

Both respective papers issued by the Bank of England and the European Central Bank detailed the trend for the use of cash being on the decline and will continue to be so in the future. Yet, whether it is the euro or the pound, key design requirements with any digital currency would include: privacy, safety, efficiency, accessibility, robustness and the capacity to comply with relevant legislation. The implementation of such a currency would present technical and organisational challenges. A key challenge would be centred on the posed security risks that would arise out of a CBDC.

I am a real believer is change for good, and I also like to keep ahead of technology innovation, not just for my professional career but also out of personal interest. I watch with interest to see how this develops as there are so many hurdles for central banks to overcome, yet as they rightly say, the world is digitising around them and they simply must keep up.