The Bank of England on January 21st, 2020, has officially announced that it will be exploring the use cases of central bank digital currencies (CBDC). However, the bank will work with a group of other central banks from around the globe. Moreover, each bank will share their learnings to educate each other on the potential consequences of utilizing CBDC.

Bank of England Exploring Central Bank Digital Currencies Explained

The central bank of the United Kingdom, the Bank of England will assess the potential use cases for a central bank digital currency in its home jurisdiction. Yet not only will it explore the benefits and possibility of implementing a CBDC. But it will also share its findings with a consortium of other central banks who are simultaneously exploring CBDCs.

Other banks include the Bank of Canada, the European Central Bank, the Bank of Japan, the Sveriges Riksbank of Sweden and the Swiss National Bank.

The conglomerate will work together with the Bank of International Settlements (BIS). It will be co-chaired by Benoit Coeure, head of the BIS Innovation Hub, and Jon Cunliffe, Deputy Governor of the BoE.

According to the announcement, the group will assess the various use cases and implications of utilizing a CBDC. Criteria to be examined include not just economic results but functional and technical design choices, cross-border interoperability, and the sharing of knowledge on emerging technologies.

The group will coordinate with several additional institutions and forums. Notable entities include the Financial Stability Board along with the Committee on Payments and Market Infrastructures (CPMI).

The Race is On for CBDC

Several powerful central banks across the globe – including some in the group mentioned above – have already begun exploring CBDCs. Distributed Ledger Technology (DLT) will, of course, bring many benefits to central banks. Specifically, in the areas of cross-border payments and settlements.

Therefore, the European Central bank, for instance, assembles a task force to assess the feasibility of a euro CBDC. ECB President Christine Lagarde said one goal is to learn how to minimize the possibility of unintended side effects. While China has maintained a firm stance against the use of cryptocurrencies, its government has been busy implementing the underlying technology. In late 2019, the Chinese government issues nearly $3 billion worth of bonds using blockchain technology for small business loans.

China is also developing its own CBDC, dubbed ‘DCEP’ for Digital Currency/Electronic Payments. DCEP has been in development since 2014 at the same time when China first researched the use of digital currencies.

DCEP is expected to launch soon, potentially in the next few months. Once it launches, the country will work to develop a legal framework for Security Token Offerings (STOs). The Chinese officials said.

CBDCs are undoubtedly creating a buzz among central banks throughout the world. Some banks have looked at CBDCs for years. 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.

What’re your views on the Bank of England’s researches along with several other central banks? Do you envision a future where every central bank has its own CBDC? Do let us know