The Bank of England is pushing ahead with plans to develop a retail central bank digital currency (CBDC) because of a lack of innovation in commercial banks, the governor of the Bank of England said on Saturday.
Speaking at the 39th Annual International Banking Seminar in Washington, Andrew Bailey said that there was a “strong need” to modernise payments practices in areas like cross-border transfers.
Although Bailey said that he would prefer innovation to be led by commercial banks, there were not enough signs that this was taking place.
“We have not yet seen enough evidence that the innovation will happen in commercial banks,” he said. “For me, this justifies why we must continue to prepare for retail CBDC.”
He suggested that “concentrations of market power” might have “stymied incentives” to innovate with core payment infrastructures.
“It is important that these structural factors not stand in the way of innovation,” he said.
“Absent innovation in commercial bank money, central banks may be left as the only game in town insofar as retail payments innovation is concerned. That is not my preferred outcome, but not one that we should rule out.”
Last year the Bank of England said that a CBDC, known as the digital pound, is “likely to be needed in future” as digital payments become ever more important in the economy.
Unlike existing digital payments, a digital pound would be created by the central bank. While some have fears that it might end up replacing cash, Bailey confirmed that the Bank would “supply cash for as long as the public want it”.
Over 50,000 people responded to the consultation on the introduction of the digital pound, which has been dubbed ‘Britcoin’, with the Bank noting that there were widespread concerns about the possible consequences for privacy.
But Bailey argued that there were a range of areas where Britcoin could help improve the payments system, such as preventing late payments and fighting fraud.
No final decision has been taken about whether to develop a digital pound. A decision is expected in 2025 or 2026.