Speaking to the Atlantic Council this past week, Bank of England Deputy Governor Sarah Breeden said there was no rush to issue a digital pound or central bank digital currency (CBDC). The comments came during the IMF Annual Meeting in Bangkok and were first reported by Bloomberg. Breeden’s comments on a “Britcoin” reflected that digital payments were already underway and that a decision to pursue a CBDC would be driven by additional benefits not available through tokenization or stablecoins.
The comments indicated that stablecoins/tokenization could deliver the same benefits of a government-controlled digital currency. Still, privately issued digital assets could seamlessly integrate with a CBDC and interoperate “smoothly.”
The Bank of England has been reviewing a CBDC, or digital pound, for years but is not yet convinced it is necessary. This reflects what is happening in the US, where the concept of a CBDC is frowned upon, largely because of potential government abuse and privacy concerns. In contrast, the EU is moving on a CBDC, or digital Euro, with haste.
The UK enabling private-sector innovation in payments makes sense, as private capital is typically more efficient than public-sector spending or intervention. Allowing private firms to innovate will drive more innovation and benefit the public. Focusing on government dominance reduces private-sector innovation and, in the long run, can undermine economic growth.
Marcos Viriato, CEO and co-founder of Parfin, the developer of Rayls, says the Bank of England’s approach to a digital pound raises the question of how digital forms of money will integrate. Parfin is a digital asset infrastructure firm that offers a core banking platform that can connect to various blockchain networks.
“The Bank of England’s signal that it’s in no rush to launch a digital pound, with stablecoins and tokenized deposits potentially filling that role, raises a broader question about the future of digital money. How effectively will these different forms of money work together? Commercial bank deposits, tokenized deposits, stablecoins and central bank money will each play different roles in the financial system. The real test is whether they can move between institutions and networks without creating new barriers to settlement. Regulation can establish the conditions for adoption, but it cannot solve the infrastructure challenge on its own. If these different forms of money cannot work together seamlessly, we risk building a fragmented digital financial system rather than a more connected one.”
Regulation is clearly needed, but competition between services creates better outcomes for consumers and businesses. A monolithic government approach to payments and digital assets risks becoming the next Minitel that fails everyone.