Central bank digital currencies are a long way from becoming reality — unless you’re in China

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  • The Bank of England said this week that the UK’s central bank digital currency is unlikely to arrive until at least 2025.
  • The growing interest in cryptocurrencies has reignited the digital currency ambitions of central banks. But so far, most CBDC projects are progressing slowly.
  • Garrick Hillman, head of research at crypto firm Blockchain.com, says CBDCs run the risk of being “massively overpriced and under-delivered”.

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Don’t expect central banks to issue their own digital currency anytime soon – that was the message from the Bank of England this week.

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The UK central bank said on Tuesday that it is moving the exploration of central bank digital currencies, or CBDCs, to a consultation phase next year.

But even if it decides to move forward with a proposed digital currency, dubbed “Britcoin,” it is unlikely to arrive until at least 2025, the BOE said. And yet, this is only if it is found to be “operationally and technically sound”.

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Anne Boden, CEO of London-based digital bank Starling, said an important question that has yet to be answered is what problem Britcoin is trying to solve. Bowden is one of many industry executives Providing input to UK authorities as they explore CBDCs.

“Everything we do in this space has to solve a real problem,” Bowden told Businesshala last week. “It has to move forward and be ubiquitous in order to provide some real value.”

The growing interest in bitcoin and other cryptocurrencies has recently rekindled the ambition of central banks to develop their own digital currency.

But so far, most CBDC projects are progressing slowly. Sweden, which was at the start of the CBDC game, says it expects to have a digital version of its krona by 2026.

On the other hand, in China, the central bank is moving forward with its CBDC project, offering a virtual version of the yuan in trials in several provinces. Experts say that the People’s Bank of China may be the first to fully launch a CBDC.

But the PBOC’s digital yuan comes with a number of problems that make it less attractive in Western countries. Critics say it is too centralized and could be used to promote government surveillance. This is because unlike cash, people’s digital transactions can be tracked online.

‘Massively exaggerated’

Garrick Hillman, head of research at crypto company Blockchain.com and Visiting Fellow at the London School of Economics, said talk of central bank-issued digital currencies mimicked the hype around blockchain in late 2017, when the price of bitcoin rose sharply. A seismic rally was experienced before the fall. ,

Several major banks talked about the huge potential for blockchain, the distributed ledger technology behind cryptocurrencies. But he rejected the idea of ​​bitcoin and other digital coins becoming a mainstream financial phenomenon.

“I think CBDCs are running the risk of being massively overhyped and under-delivered right now,” Hillman said.

“The questions that need to be discussed in order to design an effective CBDC – like privacy, like surveillance – are things that are above the salary of every central banker.”

There are a lot of issues to be resolved in the development of a CBDC – not least when it comes to ensuring confidentiality and avoiding financial censorship.

Bankers also worry that CBDCs may undermine their role in the financial system, resulting in increased risk of “bank run”. Consumers may flock to deposit their money directly with central banks instead of keeping them in banks.

“Even if you think you’ve got the perfect mouse trap to score a run in the alleged security of the Bank of England from HSBC and NatWest, until that battle is tested, We just don’t know,” Hillman said.

Nevertheless, whatever form “Britcoin” and other CBDCs inevitably take, there is no doubt that the move from analog to digital is on the way.

“We have been talking about CBDCs for years,” Hillman said. “It’s on the radar for central banks now.”

Bowden said he expects the Bank of England not to wait too long to evaluate the potential of a UK CBDC.

“The world is moving forward,” she said. “The UK has been at the forefront of many new payment systems in the past.”

“If something new is going to happen in the space, I very much hope the Bank of England will think about it sooner, not later.”


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