In brief

  • The Bank of England has released a new paper exploring digital currencies.
  • A CBDC could be useful with the decline of cash in the UK––but might present “significant challenges."
  • There is still a long way to go in the race to create a fiat-based CBDC.

A central bank digital currency (CBDC) would need to be “very carefully” designed and could present “significant challenges” when introduced, Bank of England Governor Mark Carney said today.  

Carney made the comments in a foreword to a new BoE discussion paper on digital currencies that has just been formally released.

The governor, who has spoken favorably about CBDCs previously, said that despite a UK CBDC posing “a number of opportunities,” it could be problematic for “maintaining monetary and financial stability.”

In the foreword to the paper, Carney goes on to say that as banknotes are being “used less,” a CBDC “could provide households and businesses with a new form of central bank money and a new way to make payments”––but the Bank of England is yet to decide on whether to introduce one. 

A CBDC issued by the BoE would be a fiat-currency, the paper stresses, and therefore denominated in pounds sterling. 

CBDCs differ from other digital currencies, such as Bitcoin, as they are issued and regulated by government institutions.  

The Bank of England has been leading collective research into digital currencies, along with the Bank for International Settlements (BI) and five other of the world’s largest central banks––the Bank of Canada; the Bank of Japan; the European Central Bank; the Sveriges Riksbank; the Swiss National Bank. 

This central bank collective has been assessing how useful CBDCs can be, as well as technical design choices and cross-border interoperability. 

Carney has previously said that a "synthetic hegemonic currency” (SHC)––a single currency used by a number of countries around the world––could be “the best way to ‘dampen the domineering influence of the US dollar on global trade.’”

Despite the BoE expressing interest in a digital currency, the incoming governor, Andrew Bailey, this month said that Bitcoin, on the other hand, has no intrinsic value and investors should "be prepared to lose all your money."