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Global: Bank of England Ready to Step In with CBDC if Commercial Banks Don’t Innovate

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Bank of England Ready to Step In with CBDC if Commercial Banks Don’t Innovate
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The Bank of England may need to introduce a retail central bank digital currency (CBDC) if commercial banks fail to drive innovation in retail payments, Bank of England Governor Andrew Bailey stated on October 26. Speaking at the Group of Thirty’s Annual International Banking Seminar in Washington, Bailey emphasized that while commercial banks are ideally positioned to lead in payment innovations, central banks should be prepared to act if this innovation stalls.

“If innovation does not occur as expected, central banks must evaluate whether they may be the only viable option,” Bailey remarked, underscoring why continued preparation for a retail CBDC remains essential.

Bailey highlighted the urgent need for modernizing payment systems to enhance efficiency and reduce costs, particularly in cross-border transactions, where progress has lagged. “There is a particularly pressing need in cross-border payments to improve speed, cost, transparency, and accessibility,” Bailey noted.

Digital technology offers the potential for advancements, such as instant fund release upon goods delivery and broader use of encryption to combat fraud. However, structural issues like market concentration could limit commercial banks’ ability to fully leverage these technologies, potentially leaving some payment needs unmet.

“Our work on a retail CBDC closely examines these shifts in the payments landscape,” Bailey said. “If commercial bank innovation does not meet these needs, central banks may be the last resort for advancing retail payments. This is not my preferred scenario, but it is an option we must consider.”

The Bank of England has been exploring a retail CBDC since April. Sarah Breeden, the Bank’s deputy governor for financial stability, stated on April 15 that while no decision has been made, preparing for the potential issuance of a CBDC is prudent to ensure readiness should it be necessary.

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