The UK may need to issue digital currency, as more and more non-bank actors issue currency. According to Jon Cunliffe, Bank of England’s deputy governor, the possible rise of non-bank actors issuing currency, public money in digital form may serve as a crucial anchor for confidence in money as a social convention. As this might make general access to a digital form of central bank money crucial for ensuring financial stability in the future.
Jon Cunliffe, in a speech at the OMFIF Digital Money Institute in London, said, 70% of respondents to a Bank of England survey claimed they are using less cash than before the pandemic. They have used different options such as contactless payments and internet transactions. People are rapidly shifting away from public money in the form of cash towards other options such as private and commercial banks.
According to him, new technologies will bring a significant change in the use and concept of money with potential implications for it to bounce back as a social convention.
People are more likely to get more flexible, data-driven forms of money via tokenization and distributed ledger technologies that offer new functionalities in the digital world.
He further said with the arrival of events such as stablecoins, programmable money, smart contracts, and micro-payment channels, the central banks are already grappling with key questions about how to adapt existing regulatory frameworks that are currently designed for commercial bank money circulation.
Technology-driven changes, pose further challenges for central banks if they should risk allowing publicly available state money to decline further, or even disappear altogether.
According to Cunliffe, the new forms of private money will make a strong case for the introduction of public digital money (e.g., a central bank digital currency, or CBDC). This will anchor public confidence in the uniformity of money ie. confidence in the substitutability of all monies in the national economy.
Finally, Cunliffe noted that, particularly in times of systemic stress, the “perception that there is no route out of private money, that there is no access to safe liquid assets backed by the state, could undermine confidence.”
From this perspective, a CBDC would be crucial to ensure financial stability nationwide.