Central bank digital currencies

The Bank provides physical money in the form of banknotes, which can be used by households and businesses to make payments. We also provide electronic money, but this can only be used by banks and selected financial institutions. A Central Bank Digital Currency would make electronic money, issued by the Bank of England, available to all households and businesses. This would allow everyone to make electronic payments in central bank money. 

If a CBDC were to be introduced, it would be denominated in pounds sterling, just like banknotes, so £10 of CBDC would always be worth the same as a £10 note. CBDC is sometimes thought of as equivalent to a digital banknote, although in some respects it may have as much in common with a bank deposit. Any CBDC would be introduced alongside – rather than replacing – cash and bank deposits. 

We have not yet made a decision on whether to introduce CBDC. In March 2020 we published our Discussion Paper on CBDC, which outlines one possible approach to the design of CBDC and asks for feedback from the payments industry, academics, and other interested parties. 

CBDC could create new opportunities for payments and the way the Bank keeps prices and the whole UK financial system stable. But it could also create challenges, which we would need to manage very carefully. So we are actively researching CBDC and drawing on expertise from across and outside of the Bank. Our discussion paper outlines our key areas of research.

To contact the team, please email cbdc@bankofengland.co.uk.

CBDC versus cryptocurrency

A CBDC would be fundamentally different to cryptocurrencies or cryptoassets. 

Cryptoassets combine new payments systems with new currencies that are not issued by a central bank. Examples of privately issued digital currencies include Bitcoin, Ether (Ethereum) and XRP. We have written about the economics of digital currencies and innovations in payment systems and the emergence of digital currencies.

Our Financial Policy Committee has assessed cryptoassets and concluded that they do not currently pose a risk to monetary or financial stability in the UK. However, cryptoassets do pose risks to investors and anyone buying cryptoassets should be prepared to lose all their money. 

We continue to monitor developments in this area. The Bank of England is part of the Cryptoasset Taskforce, working alongside HM Treasury and the Financial Conduct Authority to develop the UK’s response to cryptoassets, stablecoins and distributed ledger technology as these areas evolve. The findings of the Taskforce’s first report were published on 29 October 2018. 

In addition, the Bank’s Financial Policy Committee has announced that the current regulatory framework may need adjustment to accommodate innovation in the payments sector, of which stablecoins are one example. 

Our Fintech Hub monitors wider developments in distributed ledger technology.