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The Chancellor of the Exchequer of the United Kingdom announced the formation of a CBDC task force this week, putting together the Bank of England and Her Majesty’s Treasury to oversee the investigation of a new central bank digital currency.
The task force will advise the Bank of England on the potential implementation (or not) of a digital edition of the pound based on input from different sectors of business, academia, and civil society.
Antony Welfare, NEM’s executive director of enterprise, is a member of the Whitechapel Think Tank and the Finance Payments Working Group, all of which delivered preliminary research to the Bank of England when it formed the CBDC taskforce. Welfare contributed to a study titled The Impact of Digital Currency on the Future of Payments, funded by the Bank of England and due to be released in December 2020.
The task force would examine the adoption of a CBDC from any possible perspective, but in an interview with Cointelegraph, Welfare stated that one of the most significant benefits of a digital pound could be financial inclusion, noting the ubiquity of mobile devices and their widespread use by the population:
“A CBDC can help significantly in building financial inclusion. The overwhelming majority of citizens today have access to mobile devices, the potential benefits of access to state digital currency literally in the palm of one’s hand is incredible.”
Welfare emphasised the value of a digital infrastructure during the COVID-19 lockdown, especially in assisting the government in issuing unemployment benefits to laid-off civilians.
“In terms of a crisis, for example if the government wishes to send stimulus payments, currency could be issued immediately to millions of citizens — as has recently been tested in China with the digital yuan,” Welfare added.
The Whitechapel Think Tank and Finance Payments Working Group released a 74-page study that outlined six central policy issues relating to the introduction of a CBDC in the United Kingdom. This include narrowly discussed topics such as legislation, international collaboration, promoting creativity, and the need for new uniform protection and privacy requirements that would be compelled by the advent of new technologies.
However, as Welfare points out, the possibility of confusion would exist among those in government, banking, and other sectors. He agrees that the education pathway should be included in every future CBDC rollout roadmap.
“As roadmaps towards CBDC implementation accelerate, there will be a great deal of misunderstanding of the fundamentals of a CBDC by many stakeholders, even today, many governments and banks do not fully understand the benefits of a CBDC — educating these stakeholders should be a fundamental part of every state’s CBDC roadmap,” said Welfare.
The openness allowed by the use of blockchain technologies is typically viewed as a desirable advantage, but according to Welfare, this could be one of the barriers that prevents privacy-conscious organisations from joining a CBDC.
“The biggest challenge may lie in privacy issues. Blockchain is inherently secure and provides excellent data protection, that said it can be architected and controlled in a way which may not be as privacy enabling as citizens or businesses want,” Welfare said.
According to Welfare, China’s accelerated advance in the introduction of its own CBDC — the digital yuan — may be a determining factor in whether the United Kingdom launches a digital pound. He warns that a “CBDC gap” could weaken the British pound as it currently exists.
“In the long term, one of the biggest drivers for adopting a digital pound, could lie in the area of international trade,” said Welfare, adding, “Countries with CBDCs may be able to demand payment in their own native CBDC i.e digital yuan, digital dollar etc, which would be a politically sensitive negotiating issue and could potentially undermine the value of the GBP.”