Will the UK get its own digital currency?

The UK is looking at the case for issuing digital currency alongside cash. This type of money is known as central bank digital currency or CBDC.
This page was last updated on 8 June 2022

What is a central bank digital currency?

Central bank digital currency (CBDC) is a type of money that a country’s central bank can issue for people to use. But, instead of being a physical note, it’s digital. 

The Bank of England is the UK’s central bank and we’re looking at whether we should create a CBDC for the UK in the future.

If we issued a UK digital currency, it would be in denominations of pounds sterling. For example, £10 of a UK digital currency would always be worth the same as a £10 note. 

We know some people like to use cash. So, if we did create a CBDC for the UK, we’d keep issuing cash too. That way you could choose how you’d like to pay for something.

CBDC is digital money that a central bank can issue

Why is the Bank of England considering a CBDC for the UK? 

We’re considering a CBDC for the UK because there are more ways to pay for things than there used to be. More and more, people are choosing to pay electronically rather than use notes and coins. 

To keep up with these changing times, we’re looking ahead and thinking carefully about the benefits and risks of a CBDC for the UK. 

Many other countries (and groups of countries) are exploring the idea of a CBDC. They include the USA, China and the EU. A few have already introduced one. 

People are using cash less

What could be the advantages of a CBDC for the UK?

A CBDC for the UK has the potential to make it easier for people and businesses to make fast, efficient and reliable payments. 

It could help to promote innovation and competition. And it could give people more choice in how they pay for things. 

Right now, you can use two types of money when you pay for something. There’s cash in the form of notes and coins. And there’s money held by your bank in the form of a deposit.

Both types of money are worth the same. Nowadays, you can convert your deposits into cash by withdrawing notes from a cash machine (ATM). In the future, you may be able to convert your deposits into CBDC, which would be digital money issued by the Bank of England. 

As physical cash is used less we may need CBDC to play a role in ensuring trust in money in an increasingly digital world.

One of our jobs at the Bank of England is to make sure the UK’s financial system keeps working in good times and bad. A CBDC could help with that.

Having another reliable way to pay for things could help to make the UK’s financial system more resilient. For example, it could give people another option if there was a disruption to their banking or payment services. There could be other potential benefits. A well-designed CBDC could potentially address barriers to inclusion. For example, it could offer alternative ways to use accounts and pay for things online.

Are there any issues or risks that it could bring? 

Yes there are potential risks that we want to fully understand before we make any decision on a CBDC. That’s why we are looking carefully at them now.

One of these is what a CBDC would mean for the role of banks in our society, particularly as a source of lending to households and businesses. Another is how would it affect the work we do to keep the rate of inflation low and stable.

We also know some people are concerned about how private or secure a CBDC would be. These things are central to the research we’re doing now on the design of a CBDC. Any CBDC issued in the UK will protect privacy of users in line with current UK data protection regulations.

To do our job well, we need to look at the possibility of a CBDC in the future and weigh up all the opportunities and risks it could bring.

How is a CBDC different to cryptoassets (also known as cryptocurrency)?

You may have heard of Bitcoin, Ether (Ethereum) and XRP. They are examples of privately issued digital assets (sometimes known as cryptocurrency or cryptoassets).

Cryptoassets are different to CBDC in important ways.

Cryptoassets are issued privately. Whereas a CBDC is issued by a country’s central bank and backed by its government, which makes it a . If anything goes wrong with a cryptoasset, there’s no central bank or government that can step in.

The value of a cryptoasset is volatile. It can go up or down quickly in a very short space of time. This isn’t ideal when making payments. A CBDC is different and would be reliable and retain its value over time. For example, £10 of a UK CBDC would always be worth the same as a £10 note.

Some issuers of cryptoassets peg them to a country’s currency or a commodity such as gold. These are known as ‘stablecoins’. You may have heard of USD Coin or Tether, which are some of the biggest stablecoins. The value of stablecoins seems to be more consistent than other cryptoassets. But they’re still more volatile than currencies that are backed by a country (these are known as ‘fiat currencies’).

Who are you consulting about CBDC?

Later in 2022, we will be asking people for their views about a CBDC for the UK. 

Meanwhile, if you’d like to find out more, you can read about the work we are doing with the government on exploring a CBDC.

 

How long would it take to introduce a central bank digital currency?

If we concluded that CBDC is a good idea for the UK, we will then need to make sure that we build the necessary system to enable it. This would include technological and operational capabilities. This involves a lot of work, and we think the earliest date for launch of a UK CBDC would be in the second half of the decade.

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