BoE Issues Discussion Paper On Central Bank Digital Currency

The UK’S central bank, the BoE, issues a discussion paper on the CBDC. Governor Mark Carney said in a new research paper that despite the Bank of England’s interest in digital currency, it still has a long way to go.

13 March, 2020 | AtoZ Markets – The Bank of England (BoE) seriously weighs the pros and cons of issuing a central bank digital currency (CBDC) denominated in pounds sterling. The central bank recognized that a digital pound could be destabilizing for the current banking system. However, digital currency could use the latest FinTech technologies and make transactions easier and faster for consumers.

The Bank of England is Debating to Issue CBDC

BoE officially released a discussion paper on digital currency today. This 57-page document presents an “illustrative model” of the central bank’s digital currency (CBDC), designed to store value and enable payments from households and businesses.

The report, titled “Central Bank Digital Currency March 2020: Opportunities, Challenges and Design” follows discussions by government officials who are exploring the transition to a digital economy.

As cryptocurrencies and other digital currencies become more widespread, fiat money of central banks is losing its strength slowly in the market.

Blockchain-based platforms offering fast, inexpensive and secure transactions are becoming increasingly popular. Without first having issued a digital currency on the blockchain, the BoE currently retains only control over fiat and cannot enter this new market. Facebook stablecoin Libra’s announcement, in particular, has forced several countries to consider setting up a CBDC seriously.

“We are interested in the CBDC. It is a time of major change in money and payments,” said the Bank of England. “The use of banknotes, the most accessible form of money in the bank, is declining. The use of privately issued money continues to increase, with technological change driving innovation “.

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Challenges and Risks to Introduce CBDC

According to the central bank, the CBDC could present several possibilities. It also includes a “more resilient” payment landscape and a “building block” for better cross-border payments in the future. But it would also present challenges and risks, such as impacts on monetary policy and financial stability. The central bank also said:

“If large deposit balances passed from banks to the CBDC, there could be implications for the balance sheets of the BoE and commercial banks. This could affect the amount of credit provided by banks to the wider economy. It could also affect the way the bank implements monetary policy and supports financial stability.”

At present, the BoE has not yet made a decision on whether to launch a CBDC. The BoE governor has publicly stated that he would be open to the possibility of CBDC in 2018. But his successor has expressed doubts about cryptocurrencies like Bitcoin. Mark Carney, Governor of the BoE, also said that if a CBDC were to be introduced, it should be designed “very carefully”.

However, BoE invited the public to respond in writing to this document until June 12.

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