Over the past months, we have been hearing more and more from the Bank of England about the possibility of a ‘central bank digital currency’ (CBDC), which would harness the potential of technology to deliver efficient payment systems in an increasingly digital world.

In a recent speech, given at the 2nd International Workshop P2P Financial Systems, Chief Cashier of the Bank of England, Victoria Cleland, explained that such a currency could range from a restricted version, reserved for financial institutions only, to a central digital currency available to all. As she put it, such a service would allow ‘businesses and households to hold balances in central bank money and to pay each other in real time with full and final settlement, in an electronic format’. However, it is a radical idea, which opens up fundamental questions about the structure of the financial system. It also could have significant risks attached, such as reducing the deposit funding available to commercial banks and so undermining their ability to provide credit to consumers.

The Bank first postulated CBDC in its One Bank Research Agenda, published in February 2015 and it was further elaborated in a staff working paper in July this year. In a broad-ranging speech, Ben Broadbent, the Bank’s Deputy Governor for Monetary Policy, further discusses the implications of CBDC on the supply of credit.

The Bank is conducting a research programme to understand fully the issues raised, the advantages, the risks and the technologies required, including whether such a system could be operated using distributed ledger technologies. It has also made available a list of questions which will form the core of the Bank’s research, to provide guidance to external researchers.

techUK is running working groups on payments and distributed ledger technology. We also plan events focussing on alternative finance and digital currencies. Keep an eye on our events page for details.