Bank of England Governor Questions Need For Digital Pound

The leading British finance official has questioned the UK’s decision to explore the development of a digital version of Pound Sterling.

Reuters reported Bank of England Governor Andrew Bailey has on Monday questioned the need for a digital pound, even as euro zone finance ministers backed further preparatory work on a digital euro.

Last week a senior HM Treasury official during a meeting with parliament’s Treasury Select Committee, said the British government was laying the groundwork to develop a digital version of Sterling.

Digital pound

That admission by Financial Services Minister Andrew Griffith that HM Treasury was due to launch in the coming weeks a public consultation on the attributes of a digital pound, came after the idea was first mooted by then Chancellor (now Prime Minister), Rishi Sunak in April 2021.

Back in 2021, Sunak said the UK was exploring the potential of creating a digital currency backed by the Bank of England.

At the time Sunak asked the Bank of England and HM Treasury to look at the case for a new “Britcoin”, which saw the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to “co-ordinate the exploration of a potential UK CBDC.”

But BoE Governor Andrew Bailey has this week reiterated his position on the matter.

According to Reuters, Bailey told parliament’s Treasury Select Committee on Monday that he was not sure if a digital pound was needed for now.

The Bank is updating its real-time gross settlement system (RTGS), which holds the accounts of Britain’s banks, building societies and other institutions at the BoE, it reported.

“I think it’s an open question whether a wholesale digital central bank currency is needed because we’ve got a wholesale central bank money settlement system with a major upgrade,” Bailey said.

Bailey was also cautious about a digital pound for retail use such as for making payments, adding there is no plan to abolish cash.

“We have to be very clear what problem we are trying to solve here before we get carried away by the technology and the idea,” he reportedly said.

He was not convinced that retail payment systems “need this sort of upgrade at the moment.”

His comments come as euro zone finance ministers on Monday said they backed continued preparatory work for a potential digital euro, now being studied by the European Central Bank.

The EU is due to publish a draft law this year on how a digital euro would fit into the bloc’s laws, Reuters noted.

Noted critic

The intervention about a digital pound by Andrew Bailey is hardly surprising, and he is a noted critic of digital currencies.

There is also entrenched worry and concern about the growing use of cryptocurrencies among regulators and central banks.

Andrew Bailey in May 2021 warned cryptocurrencies “have no intrinsic value” and people should only buy cryptocurrencies if they are prepared to lose all their money.

Bailey then went one step further and said cryptocurrencies and similar assets were a danger to the public.

Other countries

Yet the UK is not alone in developing its own digital currency or CBDC.

China has been testing a digital version of its yuan (digital yuan or e-CNY) since 2014 and is furthest ahead when it comes to launching CBDCs (central bank digital currency) globally.

In January 2022 China’s central bank (People’s Bank of China) launched a pilot version of a wallet app, in an effort to expanded usage of the digital version of China’s sovereign currency.

In June 2022 Taiwan’s central bank said it was still working on its digital currency, but it was unclear when its CBDC (central bank digital currency) could roll out to the general public.

Japan is also looking into its own CBDC.

In February 2022, India’s central bank said it will launch a digital rupee sometime in 2022 or 2023.

Other countries are also developing regulations and rules for cryptocurrencies. Indeed, according to the Atlantic Council, ten countries have already launched central bank digital currencies and another 105 countries are exploring the option.

US Federal Reserve Chairman Jerome Powell has previously said that the development of an official digital version of the dollar could help safeguard its global dominance as other countries issue their own.

In October 2021 G7 finance ministers and central bank governors agreed cryptocurrency principles and corporate tax reforms.

The G7 finance officials also endorsed 13 public policy principles for central bank digital currencies, and stressed they should be grounded in transparency, the rule of law and sound economic governance.