CBDCs: Making the basics work

In recent years, the shift from bank notes to digital money has caused many to question how this impacts the integrity of the British Pound (GBP). As one of the few remaining banks that issues its own banknotes, our over 300 year history has been centred on ensuring that our customers can rely on the money in their pocket. 

Facilitating around one in every four electronic payments  in the UK, we continue to champion potential and help UK families and businesses to thrive. Whether it is our role in industry initiatives such as New Payments Architecture (NPA), regulatory change such as ISO 20022 or our innovative propositions in areas like Open Banking, we have a broad range of experience and examples of how we are collaborating across the industry to build the digital financial infrastructure of the future. 

When we come to think of digital money, our participation on the Bank of England’s CBDC engagement forum is a natural extension of the role that we play as thought leaders for innovation and industry change. We remain committed to investigating with the Bank of England and HM Treasury the rationale for developing a CBDC fit for the UK’s economy though we, the collective ‘industry and regulators’ we, need to be clear on what a CBDC will deliver and the outcomes that are trying to be achieved. 

Secondly, how firms offering CBDCs build sustainable business models. There is a recognition across the industry¹ that CBDC business models remain a challenging prospect. It may seem easy for a large firm, like NatWest, to absorb the cost of developing infrastructure and customer propositions for a CBDC – but for many FinTech’s, these business hurdles may prove insurmountable. 

Third is the impact of CBDC issuance on the economy and financial stability. The Bank of England has suggested that up to 20% of deposits² could migrate to new forms of digital money. This will have a direct impact on the ability for commercial banks to offer credit to the UK economy – and will directly raise the cost of consumer lending and mortgages. It is imperative that the Bank of England work together with industry in order to properly understand this impact and how the financial industry can continue to contribute to the growth of the UK economy. 

There are wider elements of a CBDC design that the industry needs to work through, almost ‘unintended consequences. Financial inclusion is an important deliverable, but how will this be implemented, and will we need a robust digital ID scheme in order to make it work? Enabling programmable money could drive new business models and opportunities, but can it be delivered without customer harm? What about  sustainability implications? Data access? Privacy? Lots of topics remain for the industry to get into. 

__________________________

¹https://www.ukfinance.org.uk/policy-and-guidance/reports-and-publications/commercial-models-potential-uk-retail-cbdc

²https://www.bankofengland.co.uk/paper/2021/new-forms-of-digital-money