The Bank of England (BoE) is moving forward with plans to develop a digital currency, citing the need to ensure a stable form of digital payment amid concerns that commercial banks may lag behind less-regulated tech firms, Governor Andrew Bailey said on Saturday. Although the digital currency is not Bailey’s preferred approach, he emphasized that it remains a viable option if traditional banks fail to innovate and keep up with the demands of a modern financial ecosystem.
Bailey has long voiced apprehension over cryptocurrencies and financial services provided by tech companies, stressing that these options often lack the safety and privacy protections inherent in traditional banking. To address these issues, the BoE and the UK’s finance ministry are jointly evaluating the potential of a state-backed digital pound or central bank digital currency (CBDC), with a final decision expected no sooner than 2025. Public feedback on the proposal has highlighted significant privacy concerns.
Speaking at the Group of Thirty forum in Washington, Bailey underscored the importance of retaining control over digital transactions within the regulatory framework of commercial banking. “Commercial bank money is the best home for that innovation,” Bailey noted, reinforcing his belief that traditional banking systems are best equipped to handle secure digital payments.
However, Bailey warned that the BoE must be prepared to introduce a CBDC if banks do not demonstrate adequate innovation. He suggested that banks may be hesitant to upgrade their payment systems because of the substantial profits generated from the existing infrastructure. Bailey pointed out that if high fees on these “rails” stifle competition and deter technological advancement, a retail CBDC could become essential.
While the UK’s electronic payment infrastructure already supports fast and cost-free public transfers, a digital pound could further enhance options, particularly in areas like automated transactions. Bailey’s remarks indicate that the BoE will continue CBDC preparations as it monitors commercial banks’ willingness to drive meaningful innovation in payment technologies.
