New “digital pound” could bolster financial security globally

That’s the message coming from a new Green Paper report, “A New Era for Money”. Part of a UK-based initiative led by The Payments Association, the report advocates increased cooperation between central banks, regulators, commercial banks and other financial institutions in order to explore a retail Central Bank Digital Currency (CBDC) in Great Britain.

The Green Paper will be followed by real-world pilots to address open design questions and mitigate risks. Specialists trust the pilots will generate working data and feedback that central banks and policymakers can use to inform open design questions and enable relevant authorities to make policy decisions.

CBDCs have emerged in recent years in response to the decline in cash payments, the search for payment efficiencies and the emergence of private digital currencies, such as cryptocurrencies and stablecoins.

Most central banks are currently researching CBDCs with The Bahamas, Cambodia and Nigeria already launching full implementations. China is expanding its pilot of a ‘Digital Yuan’ to tens of millions of users and India has recently announced a Digital Rupee, expected by 2023.

The primary benefits of CBDCs include near-instant settlement, the potential for reduced transaction costs, enhanced security and programmable payments - a new breed of automated payment.

Secondary benefits, such as financial inclusion, vary in materiality by country; while monetary policy implementation and countering the threat of stablecoins with a CBDC are yet to be established. The report suggests there is potential for a CBDC to power an alternative, regulated digital currency ecosystem that could otherwise be filled by privately issued alternatives such as stablecoins.

Kunal Jhanji, Managing Director and Partner at BCG, said:

“Much has been written about the challenges posed by a retail CBDC, including the macroeconomic risks like bank disintermediation and the role of commercial banks and other financial institutions in the new ecosystem.”

“These challenges require the public and private sectors to come together and create an inclusive framework for new infrastructure, legislation and policy that resolves open questions and responsibly unlocks the transformative benefits of digital money for the UK,” Jhanji added.

Paul Sisnett, Chief Executive Officer at paywith.glass, said:

“Implementing an entirely new form of digital money is a significant undertaking. It is therefore vital that government bodies, policymakers, the private sector and ultimately the consumers who will be using the currency, have high quality data on which to base their decisions.

“Through unprecedented collaboration with the most innovative financial services organisations, this is the only initiative of its kind that will generate those data points,” Sisnett added.