BoE’s Bailey says CBDCs could be ‘fundamental’

Innovation hub run by BoE and BIS hub likely to concentrate on CBDCs and payments, official says
Bank of England and Stock Exchange
Rachael King

Central bank digital currencies (CBDCs) could fundamentally change finance, Bank of England governor Andrew Bailey said.

Speaking at the launch of the Bank for International Settlements’ London innovation hub today (June 11), Andrew Bailey said he was “encouraged” central banks were starting “to get to grips” with this “critical innovation”.

“If this comes to pass, it will be one of the most fundamental innovations in the history of central banking,” he said. “It will move us into a new era.”

The launch of the BIS London project marks the opening of the first of four new regional hubs. The London hub has yet to be assigned specific projects.

The BoE’s deputy governor for markets and banking, Dave Ramsden, said he expected the hub would “be focusing on payments and CBDC”, areas where the BoE already works.

Ramsden also said the BoE had made great strides in work relating to regtech and suptech. It had also recently launched a new data agenda in conjunction with the Financial Conduct Authority.

CBDC research spreads

According to Central Banking’s Fintech & IT Benchmarks 2021, nine of the 10 central banks surveyed are experimenting with CBDCs. Most are still in the research phase of their projects but some have gone on to launch pilot projects and even live deployment.  

The BIS has been leading a large number of these projects, focusing on the potential CBDCs could have for cross-border payments.  

On June 10, the BIS announced it was launching Project Jura with the assistance of the Banque de France and the Swiss National Bank. The project will test whether two different CBDCs can be transacted with digital assets over a distributed ledger network.

“Technology threatens to disrupt central banking,” said Benoît Cœuré, head of the BIS’s Innovation Hubs. Appearing alongside Bailey, he said “money was clearly on the battle line”.

“We are in the middle of a silent but momentous revolution,” he said. “We need to be at the cutting edge of technology.”

The BIS currently has three innovation hubs, in Hong Kong, Singapore and Switzerland. In January 2021, the BIS also signed a signed a memorandum of understanding for a strategic collaboration with the Federal Reserve.

Agustín Carstens, general manager of the BIS, said at the launch of the London hub that other central banks were keen to set up new innovation centres.  

“The BIS opened a competitive bidding process to members to set up new hubs,” he said. Central Banking understands all members were invited to submit applications.

In June 2020, the BIS announced plans to launch centres with the Bank of Canada, European Central Bank, and four Nordic central banks: Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank.

The hubs’ work programme is currently focused on six areas: regtech and suptech, next-generation financial market infrastructure, CBDCs, open finance, cybersecurity, and green finance.

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