Global: Bank of England Advocates for Retail CBDC to Bridge Innovation Gap in Banking

Bank of England Governor Andrew Bailey has reiterated his support for a retail central bank digital currency (CBDC), emphasizing that central banks may need to lead innovation in the payment sector due to a lack of commercial bank incentives.

In a recent address at the G30 seminar in Washington, Bailey highlighted the pressing need to modernize payment systems, including both domestic and cross-border transactions, at retail and wholesale levels. He argued that leveraging digital technology is essential to avoid what he termed a “failure of imagination” in the banking sector.

Although Bailey views commercial banks as the ideal institutions to drive retail CBDC innovation, he expressed concern that they are not acting quickly enough. “For me, this underscores why we must continue preparing for a retail CBDC,” he stated. “We have yet to see sufficient evidence that commercial banks will bring about this innovation on their own. Central banks should actively engage in fostering and, if necessary, leading such progress.”

Bailey pointed out that payment systems have evolved in ways that discourage innovation, partly due to concentrated market power. “It is critical that these structural barriers do not hinder progress,” he continued. “To be effective, commercial bank money must adapt to the changing needs of its users. Our work on retail CBDC closely examines these trends. If commercial banks remain slow to innovate, central banks may indeed be the sole drivers of retail payment advancements. While this is not my preferred outcome, it remains a realistic possibility.”