The Bank of England has teamed up with other major central banks to assess the case for launching their own digital currencies, it announced today, as a debate rages over the future of money.
Threadneedle Street will work with the central banks of Canada, Japan, the Eurozone, Sweden, Switzerland and the Bank for International Settlements in a group co-chaired by former European Central Bank (ECB) executive Benoit Coeure and BoE deputy governor Jon Cunliffe.
The new group will fuel speculation that central banks are seeking to curtail the potential influence of Facebook’s libra currency, which is scheduled to launch this year, and digital currency proposals by a group of major banks including UBS.
These developments have raised fears that central banks could lose control of money and have “kicked international coordination at a central bank level into action”, said Claude Brown, a cryptocurrency specialist and partner at law firm Reed Smith.
A central bank digital currency (CBDC) would let businesses, households and financial firms other than big banks – which currently have access to central bank reserves – make payments and store value in electronic central bank money.
A CBDC would differ from the money central banks currently issue and which consumers use as hard cash at the shops or as digital money to buy things online, but they would likely be exchangeable to some extent.
They would also be different from cryptocurrencies as they would be issued and governed by a central bank and have a stable value, which would likely make them more attractive.
Central banks think CBDCs could make slow and expensive domestic payment systems and international settlement mechanisms more efficient.
Marcus Swanepoel, chief executive of cryptocurrency firm Luno, welcomed the move, calling the current international monetary system “out of date”. He said: “Businesses and individuals need cheaper, faster, secure and more inclusive access to money.”
Before they start work on digital currencies, the newly formed group of central banks will investigate what effect CBDCs would have on financial stability and monetary policy and assess how safe and resilient they would be, among numerous other issues. Some of the central banks may decide not to proceed.
Various central banks have been working on their own digital currencies for a while. China is widely seen as the furthest ahead, although few details have emerged about its project. Sweden’s Riksbank has also developed plans to launch an “e-krona”.
Bradley Rice, senior associate at law firm Ashurst, said that given the prevalence of technology in banking, the move by the BoE and others makes sense.
“The Bank has trialled proof of concepts for digital currency in the past but the technology was not there,” he said.
“We have seen significant advances in blockchain and associated technologies – now might be the right time to try again.”