1.The Bank of England and HM Treasury are jointly exploring the potential of a central bank digital currency (CBDC). A CBDC is different to a cryptocurrency (or ‘crypto asset’) such as Bitcoin, which is privately issued and not backed by any central party. A CBDC would not be a new currency; it would be a form of central bank electronic money that could be used by households and businesses to make payments—in essence a ‘digital banknote’. It would be the only form of electronic money available to the public that is issued by the Bank of England (see Box 1 for an explanation of central bank money and commercial bank money). In a March 2020 Discussion Paper on the possibility of introducing a UK CBDC, the Bank said it would be in addition to physical cash, not a replacement.
There are three types of money in the UK: banknotes, reserves and bank deposits. Banknotes—cash—and reserves (commercial bank deposits that are held in Bank of England accounts) are central bank money; bank deposits are commercial bank money.
Currently, around 97% of money in the hands of the public comprises commercial bank deposits and 3% cash.
Commercial bank money (bank deposits) can easily be converted into central bank money by withdrawing cash. At the moment, banknotes are the only form of central bank money to which the public has access.
A CBDC would be a new form of central bank money. It would be safe and free of credit risk in the same way as banknotes.
2.The Government has not decided on whether to introduce a CBDC. HM Treasury and the Bank of England have created a Joint Taskforce to explore the risks and opportunities that may follow from the introduction of a ‘retail’ CBDC, which would be designed to facilitate payments involving households and small or medium-sized businesses. Retail CBDCs differ from ‘wholesale’ CBDCs, which are designed to facilitate payments between financial institutions. The Bank is undertaking separate work to improve wholesale and high-value payments and it has cooperated with other central banks which are examining wholesale CBDCs.
3.A retail CBDC system can follow an ‘indirect’ model (also known as ‘hybrid’) or a ‘direct’ model. Under an indirect model, the central bank maintains a central ledger which records CBDC balances and processes payments, but financial institutions (for example, commercial banks) manage customer account services. The Bank of England consulted on this approach in its March 2020 Discussion Paper. Under a direct model, customer accounts and account management services are all handled by the central bank but we heard few central banks have seen such a model as viable, including the Bank of England.
4.The UK is not alone in exploring the potential of a CBDC. According to the Atlantic Council, around 90 countries are considering introducing their own form of public digital money. Seven countries have launched a CBDC, the first of which was the Bahamian Sand Dollar and the latest was Nigeria’s e-Naira. Currently, 17 other countries, including major economies like China and South Korea, are in a pilot stage and preparing possible launches. China was the first large economy to pilot a CBDC in April 2020 and it aims for widespread domestic use of the e-CNY by 2022.
5.Around 40 countries have announced they are in a research phase. Along with the Bank of England, this includes other major central banks including the European Central Bank (ECB) and the US Federal Reserve. In July 2021, the ECB announced a 24-month investigation phase for the ‘digital euro’ project, which is exploring the potential of both a retail and wholesale CBDC. The Federal Reserve is preparing to publish a review of the case for introducing a CBDC.
6.The Bank of England is collaborating with six other central banks, together with the Bank for International Settlements, on CBDC design. On 14 October 2021, the Government published a G7 report setting out principles that should govern the development of CBDCs.
7.The case for introducing a CBDC differs around the world to reflect the prevailing economic circumstances and the efficiency of national payments systems. In March 2020, the Bank of England published a consultation which set out seven ways in which a CBDC could support the Bank’s objectives to maintain monetary and financial stability:
8.The rapid pace of technological change is driving central banks’ interest in CBDCs. The past decade has seen a dramatic increase in new forms of electronic payment, and big tech companies are challenging established banks and payment operators for market share. The use of physical cash is in decline in many countries and some central banks are worried that this could undermine public confidence in the monetary system if individuals are unable to convert commercial bank money into cash, which is a direct claim on the state.
9.Central banks are also increasingly concerned about the confluence of two trends: technology companies entering finance and the evolution of new forms of digital ‘money’. Central banks have warned that big tech companies may issue their own digital currencies to users of their vast networks, which may facilitate rapid and large-scale adoption (see Box 2). Once established, these privately issued digital currencies may enable big tech companies to accrue excessive market power and reshape the payments landscape, and this would affect the functioning of the monetary system.
Decentralised cryptocurrencies—such as Bitcoin—are digital assets that can be transferred electronically between users without the involvement of intermediaries or the oversight of central banks and governments. Transactions are usually stored on a decentralised ledger known as a ‘blockchain’. A blockchain allows users to confirm transactions without the need for a central clearing authority.
In practice, few cryptocurrencies have the properties of a traditional currency, otherwise known as a fiat currency, such as the ability to act as a means of exchange, a store of value and a unit of account. Instead, cryptocurrencies are often traded as speculative assets, rather than used to make payments for goods and services. This report will use the term ‘crypto asset’ to describe this technology.
Stablecoins are a form of cryptocurrency that are designed to maintain a stable value relative to national currency or another asset. In other words, their market value is pegged to a currency such as the US dollar.
As opposed to cryptocurrencies such as Bitcoin, which are often traded as speculative assets, stablecoins are designed to reduce volatility and can be used more easily to purchase goods and services.
Stablecoins are sometimes said to ‘bridge the gap’ between cryptocurrencies and volatility-free fiat currencies and are fast becoming a popular way to store value and trade goods in the digital domain. Examples of stablecoins include Tether and USD Coin, which are the two largest stablecoins in the market as of December 2021.
10.In June 2019, Facebook announced plans to launch a digital currency called Libra. The digital currency would have been pegged to a basket of financial assets, including national currencies. The project was criticised by governments and central banks around the world. On 2 November 2021, the Rt Hon Rishi Sunak MP, Chancellor of the Exchequer, told us that Facebook’s Libra project prompted the Government to ask:
“what do we think about a global stablecoin that we are not in control of? What does that mean? How should we regulate that? Do we have to worry about financial stability? That is probably what has catalysed work on [CBDCs] … “
11.In December 2020, Libra was rebranded as Diem and its ambitions were scaled down. Nevertheless, in December 2020 Olaf Scholz, then Germany’s finance minister, said Diem was still a “wolf in sheep’s clothing”. Regulators continue to be concerned about the effects of big tech and new forms of payments on monetary sovereignty.
12.While the Joint Taskforce has set out potential benefits of CBDC, there are significant risks as well. We heard that CBDCs have the potential to provide the Government and the central bank with the power to monitor citizens’ payment transactions, posing risks to individual privacy. If a retail CBDC proved to be popular, people may transfer money out of their bank accounts into CBDC wallets (software used for digital storage), which could disintermediate the banking sector. This could increase the cost of credit and exacerbate financial instability during periods of economic stress. CBDCs could provide central banks with powerful new monetary policy tools with uncertain effects that may increase the role and influence of the central bank over the economy. We heard that CBDCs could represent a vulnerable single point of failure in the payments system, serving as a target for cyber-attacks from criminals and hostile nation-state actors. The extent to which any of these risks would be realised depends heavily on the final design of a CBDC.
13.HM Treasury and the Bank of England (‘the Joint Taskforce’) will publish a consultation in 2022 setting out their assessment of the case for introducing a CBDC in the UK. If there is a decision to proceed, the Joint Taskforce will initiate a development phase then a build and testing phase. The earliest date for launch of a UK CBDC would be sometime after 2025.
14.Parliament’s role in the introduction of any CBDC is unclear. John Glen MP, the Economic Secretary to the Treasury, said if the Government decides to introduce a CBDC, it was likely that Parliament would have some role in approving the decision, but he was not able to provide certainty on this point or explain whether it would be through legislation or some other means. Andrew Bailey, the Governor of the Bank of England, understood it was possible to introduce CBDC without legislation but nevertheless legislation would “probably” be needed to ensure the system was legally robust.
15.Digitalisation is transforming payments systems and governments must consider what responses are necessary. Any UK central bank digital currency would have far-reaching consequences for households, businesses and the monetary system for decades to come. Parliamentary scrutiny should be an essential part of assessing the case for a CBDC and if the Government decides to proceed, Parliament should have the opportunity to vote on any final decision, along with the governance arrangements for any such system, during the passage of primary legislation. The Government should set out the costs of introducing and operating any design that is proposed.
16.The Bank of England has consulted on seven different ways in which a CBDC could support the Bank’s objectives to maintain monetary and financial stability. However, a CBDC cannot be designed to support all seven objectives equally well and there are likely to be alternative solutions for enhancing the payments system with fewer risks. When the Joint Taskforce publishes the use case for a possible CBDC in 2022, it should set out the most significant long-term problem to which it believes a CBDC may be the answer. Its assessment should compare CBDCs against alternative means of achieving the same aims.
17.This report focuses on assessing the potential benefits of a CBDC as set out by the Bank of England, and the economic and political risks that we identified during our inquiry.
18.In Chapter 2, we assess how a CBDC would benefit households and businesses; what problems would it solve? In Chapter 3, we assess how crypto asset technology is affecting the monetary and payments systems, and how a CBDC might alter the role and influence of the Bank of England. In Chapter 4, we examine some of the wider international effects of a CBDC and the extent to which it could influence the economic foreign policies of UK allies and strategic competitors. In Chapter 5, we set out our view on the use case of a UK CBDC and recommended next steps for the Government and the Bank of England.
19.We thank all those who provided written and oral evidence. We are also grateful for contributions from the staff and leadership of the Bank of England and HM Treasury. A full list of witnesses and authors of written evidence is available in Appendix 2.
1 Bank of England, Central Bank Digital Currency: opportunities, challenges and design (12 March 2020): [accessed 15 December 2021]
2 According to the Bank of England, banknotes make up 94% of physical currency, while coins make up 6%. Of the banknotes that circulate in the UK economy, nearly 10% are issued by Scottish and Northern Irish commercial banks, but those banknotes themselves are backed by Bank of England notes, UK coins, and funds on deposit at the Bank of England. In many countries, coins are also issued by the central bank, but in the UK coins are produced by the Royal Mint, and are nominally a liability of the Government.
3 Bank of England, Central Bank Digital Currency: opportunities, challenges and design (12 March 2020): [accessed 15 December 2021]
4 In November 2018, the Bank of England, Bank of Canada and the Monetary Authority of Singapore published a joint report which set out ways to improve cross-border payments and settlements using wholesale CBDCs. See, Bank of Canada, Bank of England and Monetary Authority of Singapore, Cross-border interbank payments and settlement (15 November 2018): [accessed 15 December 2021]. For more information on international wholesale CBDC projects see, Eswar Prasad, The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance, (Harvard University Press, 2001).
6 (Georges Elhedery). Sir John Cunliffe told us, “We would not give customers direct accounts at the Bank of England.” See, (Sir Jon Cunliffe).
8 Atlantic Council, ‘Central Bank Digital Currency Tracker’: [accessed 15 December 2021]
9 Ibid.. Individual eurozone countries are contributing to developments for both retail and wholesale digital euros.
10 The Federal Reserve has already conducted some exploratory work. For example, the Federal Reserve Bank of Boston has been developing prototypes of potential payments systems connected to a ‘digital dollar’. This work is being completed in conjunction with the Massachusetts Institute of Technology.
11 The six central banks are the Bank of Canada, Bank of Japan, European Central Bank, the Federal Reserve, Sveriges Riksbank (the Swedish central bank) and the Swiss National Bank.
12 G7, Public Policy Principles for Retail Central Bank Digital Currencies (14 October 2021): [accessed 15 December 2021]
13 Bank of England, Central Bank Digital Currency: opportunities, challenges and design (12 March 2020): [accessed 15 December 2021]
15 (Patrick Honohan)
16 Coinbase, ‘What is a stablecoin’: [accessed 15 December 2021]
17 Business Insider, ‘Top 6 stablecoins in the crypto market - what are they, how they work and why they have governments worried’, (12 November 2021): [accessed 15 December 2021]
18 Oral evidence taken before the Economic Affairs Committee on 2 November 2021 (Session 2021–22), (Chancellor of the Exchequer)
19 ‘Facebook’s renamed cryptocurrency is still ‘wolf in sheep’s clothing’: German Finance Minister’, Reuters (7 December 2020): available at . The Diem Association has stressed its institutional separation from Facebook.
20 Written statement Session 2021-22. In November 2020, the IMF said without strong legal foundations, the issuance of CBDCs poses legal, financial and reputational risks for central banks. See, IMF, Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations (20 November 2020): [accessed 15 December 2021]
21 (John Glen MP)
22 (Andrew Bailey)