Wholesale digital pound is a question of how, not when, says Bank of England

While the UK government and Bank of England are pushing forward their exploration of a retail digital pound, work on a wholesale solution is also a priority — and a far more certain one.

“The question is not should we try and exploit the new technologies for wholesale. We should, and we’re looking at how to do that […] and what’s the quickest way,” Bank of England Deputy Governor Jon Cunliffe told the Treasury Committee on Tuesday.

When it comes to a retail solution, the government will only make a decision on whether to implement a central bank digital currency around 2025, with the potential to launch it further down the line. However, Cunliffe said that “it’s more likely than not” that the digital pound will move forward as the central bank looks to fill the gap as the use of physical cash declines.

After publishing a consultation paper on the digital pound earlier in February, the Bank of England and HM Treasury are looking to hear public feedback on design choices — including topics of security, resiliency and privacy.

While the consultation focuses on the kind of CBDC that private individuals may be able to use on a day-to-day basis, Cunliffe reminded the UK Parliament that a wholesale CBDC is “not on the back burner.”

He highlighted the Financial Markets Sandbox, proposed under the Financial Services and Markets bill currently making its way through Parliament, will play a significant role. Work with the Bank of International Settlements’ Innovation Hub also focuses on building rails to tokenize assets. 

“At the moment, we see the needs of wholesale and retail as separate,” the central banker added. “It is a much bigger change — societal and economic — than wholesale.”

The UK is on track 

Central banks are racing to study and design possibilities for a central bank digital currency. For the UK, the government is looking to achieve global financial hub status.

The committee quizzed Cunliffe on whether the rollout of a CBDC is taking too long compared to other global competitors in Europe and Asia. “I don’t think we are behind other advanced economies,” the deputy governor assured.

The Bank of England is renewing its Real-Time Gross Settlement, allowing financial institutions to settle payments. A wholesale CBDC based on decentralized ledger technology may have a link to the renewed RTGS in the future. However, policymakers worry this may slow down the wholesale CBDC rollout process.

“We do have to balance speed against getting it right, and there are some really big things at stake here,” Cunliffe said.