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Fintech Q2 2022

Addressing the challenges and opportunities of digital money

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Jana Mackintosh

Managing Director of Payments and Innovation, UK Finance

Over the last few months there has been significant amounts of work done on the potential development of a UK Central Bank Digital Currency (CBDC).

CBDC would be a new form of digital money issued by the Bank of England. I am part of the Bank of England’s Engagement Forum on this matter, which is considering a wide range of complex issues around how a CBDC might operate in practice.

Challenges that lie ahead

One of the most important questions is around interoperability between different forms of money. Businesses and consumers may need to exchange a CBDC for the notes, coins and bank deposits we use on a daily basis. This is something that will need to be done seamlessly and efficiently for a CBDC to deliver value.

Similarly, how a CBDC supports person to business payments is an open question. Whether someone can use a CBDC to pay for groceries or buy some drinks when out with friends could be a key factor in its design.

A CBDC has the potential to deliver real benefit to UK consumers and businesses.

Investing in new infrastructure

Merchants and consumers may have to change the way they make and receive payments and firms will have to invest in new CBDC software and infrastructure. Whether current business models will support this remains to be seen.

As well as the practical design issues, there are potential impacts to the economy. Banks take in deposits and use them to issue loans, which drives economic growth. I can take out a mortgage, borrow money on a credit card or buy a car on finance because we all keep our money with a bank. These firms have a duty to their customers to keep their money safe – and are under sophisticated regulation to make sure they do. If a CBDC breaks this process it could have a knock-on impact on wider economic growth.

Delivering real benefit for all

These issues and many more need to be worked through and this work will take time, but what is clear to me is the desire from the financial services industry to serve the UK economy with the right products and services. A CBDC has the potential to deliver real benefit to UK consumers and businesses.

Challenges exist along the way, but also opportunities. Those firms willing to tackle these challenges will be at the forefront of a new era of smart and responsive financial services.

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