On January 21st, 2020, the Bank of England (BOE) announced it would be exploring the use-case of a Central Bank Digital Currency (CBDC).
The bank will work with a group of other central banks from around the globe, where each bank will share the info to educate each other on the potential consequences of utilizing a CBDC.
These banks include the Bank of Canada, the Bank of Japan, the European Central Bank, the Sveriges Riksbank — of Sweden, and the Swiss National Bank.
The group will work together with the Bank for International Settlements (BIS). It will be co-chaired by Benoît Cœuré, head of the BIS Innovation Hub, and Jon Cunliffe, Deputy Governor of the BoE.
According to the announcement, the group will not only assess the various use cases and implications of utilizing a CBDC, but will also look into practical and technical design choices, cross-border interoperability, and the distribution of info on emergent technologies.
Are CBDCs Imminent?
A number of powerful central banks across the world have already begun exploring CBDCs. Distributed Ledger Technology (DLT) is anticipated to bring several benefits to central banks in the areas of cross-border payments and settlements, among others.
The European Central Bank (ECB), for example, has already assembled a task force to assess the feasibility of a euro CBDC. ECB President Christine Lagarde said the goal is to learn how to minimize the possibility of unintended side effects.
China is also developing its own CBDC, dubbed ‘DCEP,’ for Digital Currency/Electronic Payments. DCEP has been in development since 2014 when China first researched the use of digital currencies.
DCEP is expected to launch in the near future, potentially in the next few months. Once it launches, Chinese officials have said the country will work to develop a legal framework for Security Token Offerings (STOs).
Regulators Are Starting to Embrace Crypto
In the past, traditional financial institutions have been pretty skeptical when talking about CBDCs. This has been especially apparent in the way regulators have opposed Libra, Facebook’s proposed cryptocurrency.
However, things seem to be slowly changing, as CBDCs are undoubtedly creating a buzz among central banks throughout the world.
As for the BoE and the Bank of Japan, today’s announcement seems to be the first public notice of any development regarding a CBDC.