The Bank of England, one of the oldest and most respected central banks in the world are seriously considering issuing their own central bank digital currency (CBDC). Sarah John, the Chief Cashier at the Bank of England, said that
“central banks across the globe all need to start looking into central digital currencies and take them very seriously. Technology is moving on very fast so central banks are very alert to the fact that they could risk handing over complete control of our management of money.”
Bank of England
The Chief Cashier thinks that central banks need to do more research and define the needs of the central bank as well as the technology and assets offered by a CBDC.
On the other side of the world, the Bank of Japan Governor is calling for more caution ahead of issuing a digital currency. Just weeks ago at the meeting of central bankers, the BoJ head was one of the leaders calling for a global meeting of bankers to review the use of central bank digital coins. It seemed as if the BoJ would lead the charge, so this seems to be a reversal of opinion.
Bank of Japan
Bank of Japan Deputy Governor Amamiya suggested that countries should conduct “a comprehensive study” on how central bank-backed digital currencies (CBDCs) could affect their settlement and financial systems.
Other Central Banks
As well as the Bank of Japan, several central banks are investigating the potential involved in issuing their own digital currencies, including Sweden’s Riksbank, the central bank of the Bahamas, the Bank of Canada.
In Germany the Association of German Banks (Bankenverband) has called on the European Union to develop its own digital euro.
Bank of International Settlements Report
A recent study conducted by the Bank for International Settlements, shows that a majority of central banks are collaboratively looking at the implications of a central bank digital currency. Although many have reached the stage of considering practical issues, central banks appear to be proceeding cautiously and few report plans to issue a digital currency in the short or medium term.
The Problems for Banks
Digitizing paper money and metal coins presents a tough challenge. Such a currency would have to have “cash-like” safety from defaults, be private, impervious to electronic outages, and still easy to use. The architecture could use a traditional account system or be wired up with distributed ledgers to make it less susceptible to a single point of failure. Such a currency could also be linked to a digital identification system and be leveraged to make cross-border transactions cheaper and more efficient.
A critical issue is the interplay between the central bank and commercial institutions.
Reuters reports that “as Facebook’s efforts to launch its Libra cryptocurrency pour fuel into debates over who will control money in the future, major economies have started to examine how so-called central bank digital currencies (CBDCs) could become reality.”