What are the opportunities and design features that corporate treasurers would want from a central bank digital currency (CBDC)? These are the questions that the Bank of England is asking businesses as it completes its current round of consultation on the possible introduction of a digital pound.
Senior Bank of England adviser Jeremy Leake is urging corporate treasurers to let the Bank know their views on a CBDC ahead of the 7 June 2023 deadline for responses to its consultation.
Speaking at the recent ACT Cash Management Conference, Leake stressed that the Bank was not committed to implementing a CBDC, but that it was considering the proof of concept, design and ultimately the build stages of a CBDC if a positive decision to create a digital pound were to be made in the future.
In February 2023, the Bank of England and HM Treasury released a joint consultation document, The Digital Pound: a new form of money for households and businesses?, outlining its assessment of the case for a retail CBDC and justification for preparatory work irrespective of its ultimate decision on whether or not to proceed with the project. The document highlights the future trends in payments and how a digital pound could provide a useful alternative to what is currently available to citizens.
“We are not at the stage of committing to issuing a digital pound,” Leake said, “but we do want to give the UK the option to build one should it be needed. So, we are now proceeding to the design phase, with technical development work over the next two to three years. At the end of this phase the decision will be taken on whether we will build a digital pound, which will clearly be a considerable public investment.”
Leake added that the build phase wouldn’t start until the second half of the decade “at the earliest”.
Leake explained that the digital pound would be designed for retail purposes for use by households and business – it would not be used for wholesale market activity between financial institutions. He stressed that a digital pound would not be used to replace cash, confirming the Bank’s commitment to maintaining cash. “A CBDC will sit alongside cash as a digital alternative,” he said.
The Bank’s proposal would be to deliver the currency through public sector infrastructure supporting private sector innovation. The digital pound would be held on a central bank core ledger, although it would be the private sector that would be responsible for interacting directly with end users via “pass through wallets and other services”. This would ensure that digital accounts would be “at least as private as other bank accounts today”.
While the consultation document proposes certain limits on how much of the digital pound individuals would be able to hold, at least during an introductory period – with one suggestion of up to £20,000 for both UK resident and non-resident individuals – corporate limits will be important questions for the design phase.
“We are very keen for input from corporates, both in response to the consultation and in discussions over the design phase where we will consider specific operational issues,” Leake said. “In particular, we would like to hear views on the potential opportunities for UK corporates and what design features would be needed to realise these opportunities.” Opportunities include the possibility of using programmable “smart contracts” for instant payments, confirmations and instant settlement against delivery (removing risks from counterparty failure), while issues could include security, confidentiality and ease of use, particularly given holding limits.
“It is an opportunity to shape the payments future, and is not something we want to get wrong,” he said.
Naresh Aggarwal, ACT associate policy and technical director, agreed that this was a “once in a generation” transformation in payments infrastructure. “It is about how we will use money in the future,” he said. “If the UK implements a CBDC, it is important that it works for all parts of society, so there is a real need for engagement.”
The deadline for responses to the Bank of England/HM Treasury consultation document is 7 June 2023. Details of how to respond can be found here. The ACT is preparing its own response and you are welcome to feed into this by sending a note to technical@treasurers.org. Naresh Aggarwal writes a regular blog for the ACT on CDBCs, you can read the latest blog here.
Philip Smith is editor of The Treasurer