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• CBDC will open a new frontier to improve payments
• Abuse of power is a question of democracy, not technology

Although the Bank of England has not yet taken a decision on whether to issue a digital pound, it is more likely for the UK to adopt one than not, Jon Cunliffe, deputy governor of the Bank of England, has said.

before the influential Treasury Select Committee, Cunliffe said the BoE moved from the “maybe yes, maybe no” to the “likely to” after monitoring trends in the economy and payments, as well as trends in society and technology.

Although the BoE believes the UK central bank digital currency (CBDC) will likely be needed, Cunliffe added they “don’t know enough about those trends to actually say yes [to] a very major public infrastructure project”.

The BoE and HM Treasury launched a joint consultation on the digital pound earlier this month, which included a roadmap for the UK to further study the potential of a retail CBDC.

Cunliffe assured the MPs these actions do not mean they have made a decision yet but these engagements are necessary to build up skills for a future CBDC.

It is possible for the BoE to eventually decide not to issue a digital pound, Cunliffe said, emphasising that “likely to, doesn’t mean certainly”.

But “if we just wait until we say okay now we think it’s needed, we’ll be five years behind”, the BoE deputy governor said.

Use case no. 1: opening a new frontier

In recent years, several high-profile policymakers, including the BoE’s own Andrew Bailey, as well as the House of Lords, have questioned the problem that a potential UK CBDC is trying to solve.

Unlike many developing countries, the UK has a highly banked population who can transact instantaneously in a secure, resilient and low-cost payment system.

While Cunliffe agreed that there may not be a problem at the moment that a digital pound needs to solve in the existing payment system, he argued there is a prospect in new technologies and the BoE is taking a forward-looking approach when it says a CBDC will “likely” be issued.

“This is not about there is a particular thing that we think needs to be done,” Cunliffe said.

“This is about opening a new frontier for people to improve payments and the way in which money is used and how we transact.”

As a specific example, the BoE deputy governor said micropayments could be done much easier via a digital pound. For instance, people would not have to subscribe to a newspaper to read an article but instead could make tiny fractions.

Additionally, e-commerce payments could be made safer via automated delivery versus payments, another programme that could be built on a CBDC.

In that scenario, the e-commerce platform could lock money on the consumer’s account but the settlement would happen only after the item was delivered.

“Rather than paying for something on the internet and when it doesn’t arrive trying to get your money back, you can actually scan a barcode when it is on your door” which automatically concludes the payment, Cunliffe explained.

Other overlay services may also allow the user to programme the money so that it can be used in certain ways but cannot be used in other ways.

Current automated payments, such as direct debits and standing orders, allow users to configure payments to an extent, but Cunliffe said “they’re quite clunky and blunt instruments whereas programmable money would allow for much more differentiation and variation in that”.

Abuse of power is a question of democracy, not technology

Although there is significant potential in what the overlay services on the digital pound could deliver, Cunliffe emphasised that “neither we nor the government wants to do the programming”.

This means that the BoE will provide the functionality but it will be for the private sector to develop services that offer ways to programme the money.

This is a policy choice by policymakers, Cunliffe said, stressing that they “deliberately decided not to do that”.

This decision is intended to allay fears that the government would programme the money so that people get banned from spending it on certain things or the state could to any extent control the way people use their money.

“The thought that governments wouldn’t potentially use powers that are technologically available for social goods, as the government sees them, feels to me a very-very big gamble with our liberties,” Conservative MP Danny Kruger said.

Such concerns became particularly pressing after the Canadian government’s controversial move to freeze the bank accounts of citizens who protested against COVID-19 mandates.

But Cunliffe confirmed that the BoE will not have the authority to look into people’s bank accounts.

He pointed out that the police, tax officers, financial crime and fraud authorities have the power to look into people’s bank accounts with constraints set by the parliamentarians, and the same rules could be set for the digital pound.

The very example from Canada shows that the government already has the means to take control of bank accounts.

“I would argue that in a society in which 95 percent of the money is through commercial banks, the government has all sorts of possibilities to interfere with the technology and the way in which people use money.”

“The protection against that is not in the technology. The protection is in the institutions of government,” Cunliffe stressed.

He added, however, that a future BoE could theoretically change the responsibilities between the bank and the government but the protections against that are not technological.

Cunliffe's appearance in parliament was part of the cross-partisan committee’s inquiry into the crypto-asset industry, which this time looked at policy questions related to the digital pound, as well as whether the UK really needs a CBDC.