One of the contributors to the Bank of England’s preliminary CBDC research tells us why a digital pound is neccessary in the United Kingdom.
The United Kingdom Chancellor of the Exchequer announced the launch of a CBDC task force this week, bringing together the Bank of England and Her Majesty’s Treasury to coordinate the exploration of a potential central bank digital currency.
Depending on the feedback received from various areas of industry, academia, and civil society, the task force will advise the Bank of England on the future rollout (or not) of what would be a digital version of the pound.
Antony Welfare, executive director of enterprise at NEM, is a member of the Whitechapel Think Tank and the Finance Payments Working Group, both of which provided preliminary research to the Bank of England in the formation of its CBDC taskforce. Welfare contributed to a report titled The Impact of Digital Currency on the Future of Payments, which was commissioned by the Bank of England, and published in December 2020.
The task force will consider the implementation of a CBDC from every available angle, but speaking to Cointelegraph, Welfare said one of the biggest boons offered by a digital pound could be financial inclusion, citing the ubiquity of mobile devices and their commonplace use among the population:
“A CBDC can help significantly in building financial inclusion. The overwhelming majority of citizens today have access to mobile devices, the potential benefits of access to state digital currency literally in the palm of one’s hand is incredible.”
Welfare noted the utility a digital system would have provided amid the COVID-19 lockdown, particularly in helping the government issue unemployment payments to laid-off citizens.
“In terms of a crisis, for example if the government wishes to send stimulus payments, currency could be issued immediately to millions of citizens — as has recently been tested in China with the digital yuan,” Welfare added.
The 74-page report published by Whitechapel Think Tank and Finance Payments Working Group highlighted six key policy considerations relevant to the implementation of a CBDC in the U.K. These include broadly addressed issues such as regulation, international cooperation, encouraging innovation, and the need for new universal standards for security and privacy which will be forced by the arrival of new technology.
But as Welfare notes, the potential for misunderstanding will still remain among those in government, banking, and beyond. He believes the education process should form part of the roadmap of any potential CBDC rollout.
“As roadmaps towards CBDC implementation accelerate, there will be a great deal of misunderstanding of the fundamentals of a CBDC by many stakeholders, even today, many governments and banks do not fully understand the benefits of a CBDC — educating these stakeholders should be a fundamental part of every state’s CBDC roadmap,” said Welfare.
The transparency enabled by the use of blockchain technology is usually perceived as a benefit to be desired, but according to Welfare, this might be one of the sticking points that stops privacy-conscious entities from getting on board with a CBDC.
“The biggest challenge may lie in privacy issues. Blockchain is inherently secure and provides excellent data protection, that said it can be architected and controlled in a way which may not be as privacy enabling as citizens or businesses want,” Welfare said.
China’s accelerated progress towards the launch of its own CBDC — the digital yuan — could also be a deciding factor in whether the U.K. launches a digital pound, says Welfare, who warned that a “CBDC gap” could undermine the British pound as it exists now.
“In the long term, one of the biggest drivers for adopting a digital pound, could lie in the area of international trade,” said Welfare, adding, “Countries with CBDCs may be able to demand payment in their own native CBDC i.e digital yuan, digital dollar etc, which would be a politically sensitive negotiating issue and could potentially undermine the value of the GBP.”