The Bank of England(BOE) has confirmed, through one of its officials, that a Digital version of the British Pound could soon be used in wholesale markets in a move that could bring the UK one step closer towards adoption of a CBDC(Central Bank Digital Currency). The Bank of England is the Central Bank for the UK with a mission to deliver monetary and financial stability for the residents of the United Kingdom. The Bank was established in the year 1694 and has formed a base model upon which most modern central banks have been built over. It is also the eight oldest bank in history.
According to Jon Cunliffe, the deputy governor of the bank, the banks position on the use of a digital pound has been misunderstood. This sentiment stems from the assumption that policy makers were only considering its use for retail markets only. He went ahead to recognize that the digital coin has a potential transformative effect on wholesale financial markets by tokenizing financial assets, facilitating atomic settlements and enforcing smart contracts among other benefits from related technologies.
Mr. Cunliffe also confirmed that a bill is under consideration by parliament to set up a regulatory framework that developers can use to explore more ideas and solutions like shrinking trading and settlements into instantaneous smart contracts with efficiency, transparency, trust and speed. He went further to note that one way to implement the digital pounds is to tokenize the bank’s reserves, a feat he referred to as “wholesale money” and develop a decentralized ledger system for transferring these tokens between participants in the wholesale market. He also commented that, like other central banks, The Bank of England is exploring similar solutions.
It is important to note that this is not the first time the bank has hinted into the exploration of CBDCs for the UK. In February this year, a news report indicated that a digital version of the British Pound was in the banks plans with a launch date expected later this decade. While suggesting this as a possibility, the report indicated that the BOE and The Treasury would create a framework that could potentially introduce a new central bank currency to the market.
According to the bank’s official website, it is looking into the issuance of a digital pound but noted that it will not replace cash. The bank has already created a CBDC Engagement Forum and a Consultation Paper that has outlined different use cases for the digital pound including Checking wallet balances, purchasing commodities using the digital pound with the same infrastructure used by credit and debit cards, paying bills with instant notifications, transfer money from a bank account to the digital pond wallet and even ordering groceries online. The consultation phase is set to close on 7th June this year to allow the bank to enter the deign phase that will run for the next 2 to 3 years. The design phase will determine the technology and policy requirements for the digital pound.
