The Bank of England has shown its support for a central bank digital currency (CBDC) but has ruled out anything similar to cryptoassets such as Bitcoin.
The Bank has released a second discussion paper on creating a CBDC, which it said would be a stablecoin.
This means it would be linked to the value of an asset and will be denominated in sterling.
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“For the purpose of this discussion paper, new forms of digital money are assumed to be denominated in sterling,” the Bank said.
“Unlike cryptoassets such as Bitcoin, which do not have an anchor, they are also assumed to be backed by assets that make them stable in value.
“But, unlike commercial bank money, it is further assumed they would not be created by lending to the real economy.”
The Bank revealed responses from a discussion paper last year, which suggested a CBDC could be used to distribute direct financial support to citizens and to make quantitative easing more widely available, for example by incorporating alternative lenders.
The latest paper said a CBDC needs to be accessible regardless of geographic location, age, socioeconomic status, digital skills or disability.
It should have reliable infrastructure and protect a users’ privacy while providing a benefit not available elsewhere.
The paper does highlight some risks of a CBDC though.
It warns that lending costs could increase if money flows out of deposits and into a CBDC instead.
“We live in an increasingly digitalised world where the way we make payments and use money is changing rapidly,” Andrew Bailey, governor of the Bank of England, said.
“The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks, governments, and society as a whole, need to carefully consider and address. It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.”
Trade body Global Digital Finance (GDF) welcomed the latest paper.
“The UK is a leader in innovation in the finance sector, and is at an important juncture where new forms of digital money offer unlocking great potential in delivering money faster, cheaper, and more efficiently to consumers and businesses,” Lawrence Wintermeyer, executive co-chair at GDF, said.
“The timely implementation of a CBDC will attract an influx of industry into the UK, bourgeoning new industry activity, and boosting economic growth.”