March 14, 2023

Digital Pounds - Part 7: Conclusions for CBDCs

HMT and BoE recently launched a consultation on their proposal to introduce a Central Bank Digital Currency, the Digital Pound. The earlier parts of this series consider, in detail, the likely impacts. 

Conclusion 

The consultation paper is a thought provoking read. In truth, I am convinced for the same reason that the authors are. Thirty years from now it is hard to imagine our transactions being anything other than near 100% digital and the BoE must act now to ensure the continued prominence of state money in such a system. The risk of private or foreign money coming to dominate is unacceptable. With other central banks considering CBDC projects, the UK must too. 

However, the consultation paper makes too little effort to wrestle with the challenges that this change will cause. It reads half way between advocacy and done deal. Where risks are identified it does not, yet, move beyond a plan to have a plan. Unfortunately this means the UK will be less well prepared for the challenges as they emerge. More significantly, it makes the project easier to oppose as the current proposal is so far from robust. 

I hope that the challenges raised, and no doubt by others during the public consultation, will give HMT and the BoE a chance to thoroughly plan for and respond to the risks which materialise. The UK undoubtedly has the financial, technical and policy acumen required to be a global leader in CBDCs. To do so, though, we must confront the hard challenges raised by a change of this magnitude. In starting work early, and publicly, HMT and BoE are I believe preparing to do just that. 

— 

Particular thanks are due to Nishu Lahoti and Charlie Smith who gave feedback on early drafts of this work. Any errors of reasoning, judgement or grammar which remain are clearly mine. 

This is the conclusion of a submission in response to HMT’s and BoE’s public consultation. The full response is available as Parts 1-6 here.

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