UK Government Accelerates CBDC Exploration

The U.K. government will bring forward a CBDC consultation “in the coming weeks.”

The revelation was made by the Chancellor of the Exchequer Jeremy Hunt in a written statement to parliament on Friday (Dec. 9).

The consultation will “explore the case for a central bank digital currency [CBDC] — a sovereign digital pound — and consult on a potential design,” Hunt said.

He added that the Bank of England would also publish a working paper about technological considerations informing the potential build of a digital pound.

Despite Hunt’s enthusiasm, a digital pound does not have widespread support in parliament.

In January, the cross-party Lords Economic Affairs Committee published a report titled “Central bank digital currencies: a solution in search of a problem?”

That report found that there is “no convincing case” for why the U.K. needs a CBDC and that while digital currencies have their advantages, if the BoE were to start issuing CBDCs, it could present “significant challenges for financial stability and the protection of privacy.”

Although the committee found that the BoE has overstated the case for a retail digital pound, it was more open to a wholesale CBDC for use between financial institutions.

In general, wholesale CBDCs are generating more interest from central banks, while retail CBDCs are being explored cautiously.

For example, the Banque de France (BDF) is currently experimenting with the technology and has stated that it could be ready to launch some form of wholesale CBDC as early as next year.

Meanwhile, the European Central Bank (ECB) is expected to conclude the investigation phase of the digital euro project next October, at which point it will decide whether to issue a retail CBDC.

In a speech last month, ECB President Christine Lagarde said that the project had “strong political backing,” and that the ECB is at a “relatively advanced stage in exploring a central bank digital currency.”

However, like the Lords Economic Affairs Committee members, Lagarde is aware of the need for a CBDC to protect consumers’ privacy.

As such, she said that the ECB and the European Commission are exploring the possibility of replicating “some cash-like features,” in the digital euro that would enable a degree of anonymity for low-value, low-risk payments.

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