By David Milliken
WASHINGTON (Reuters) – The Bank of England is proceeding with efforts to establish a digital currency accessible to the general public, despite reservations. Governor Andrew Bailey noted on Saturday that commercial banks are at risk of lagging behind less-regulated technology companies.
Bailey’s comments reflect his ongoing apprehension about the potential shift of day-to-day payments and banking services to cryptocurrencies or to technology companies providing services that may be less secure or private than those offered by banks.
Both the Bank of England and the UK’s finance ministry have indicated that a definitive decision on whether to introduce a state-backed digital pound or central bank digital currency (CBDC) will not be made before 2025. This decision follows a consultation process that raised significant privacy concerns.
Bailey stated, “That (CBDC) is not my preferred option, but it’s one we can’t rule out,” during the Group of Thirty meeting in Washington, a gathering of central banks and commercial bankers.
Although Britain’s current electronic payment infrastructure facilitates rapid transfers at no upfront cost to the public, potential future digital currencies could provide additional capabilities such as automatic payments.
Bailey noted, “Commercial bank money, i.e., the banking system, is the best home for that innovation,” adding, “But … are they the only game in town? At the Bank of England, we’re continuing to prepare for a retail CBDC because, to be frank, we are not yet seeing enough evidence that innovation will happen in the commercial banking system.”
He suggested that commercial banks might be hesitant to innovate because they are profiting significantly from the current system. Bailey remarked, “To be particularly frank about this, if the rents being earned from the ‘rails’ (payment systems) act to inhibit innovation and competition, that is why … we need a retail CBDC on the table.”