Jon Cunliffe of Bank of England: “Trust in the public role of money passes from the new national digital currencies”

Sir Jon Cunliffe, Deputy Governor of the Bank of England, in a speech a few days ago spoke of the imminent impact of Central Bank Digital Currency (CBDC) in the scenario of the relationship between people and public money: “In the United Kingdom, the Bank of England has been issuing money to the public for over 300 years. Its notes, bearing the famous pledge I promise to pay the bearer …, are carried in millions of wallets and purses and used millions of times every day by the public to transact. These notes and coins are in British Pounds, the currency of the United Kingdom. It is the Bank of England, on behalf of the state, which is responsible for ensuring the stable value of the currency by keeping inflation at its 2% target. Public money for general use in the UK is only available in the form of physical cash. It is highly visible, reliable and, in fact, it is probably the image that many people in this country have in their minds when they imagine money ”. But most of the money held and used by people in the UK as in the rest of the world today is not physical public money, issued by the state, but private money issued by commercial banks. About 95% of the money people hold for making payments is held as a bank deposit. “In everyday use, only 23% of pre-pandemic payments were made using public money in the form of cash, down from nearly 60% a decade earlier. It is money not covered by that familiar Bank of England promise to “pay the bearer”. In essence, the distinction between public and private money is not always clear to everyone, even though we live in a deposit guarantee system that “offers the money holders of a commercial bank the protection and public support in the event of bank failure. “. As digital money has become more available, cheaper and widely used, even for transactions of minimal value, the use of public money in the form of physical cash has been decreasing “taking the form of credit and debit cards and with the emergence of electronic money. Digital forms of payment surpassed cash in 2015 and now account for three quarters of all payments, with debit cards alone accounting for 42% of payments ”. Given that the only digital money available to the public at the moment is money from a private and commercial bank, the move from physical money to digital payments “meant a shift from public to private money”. The pandemic and the ensuing huge forced experiment in life, work and remote transactions has, at least temporarily, accelerated these trends. “A recent Bank of England survey, for example, found that 70% of respondents use less money than before the pandemic. For obvious reasons, more use has been made of contactless payments and Internet transactions. ”There are, however, on the horizon“ new technologies and innovations, such as tokenization and the distributed ledger, that could further transform the money we use. Stablecoins, a form of crypto-asset, are probably the best known of these. Their proponents say they have the potential to radically reduce the cost of digital money and increase its functionality – the things money can do – by incorporating it much more deeply into the digital world in ways we can only imagine. ” But who is producing these new forms of money for now is not the banks, but the technology companies, “including the so-called Big Tech Internet platforms. Their business models are very different from those of banks: many have no interest in providing credit, but rather try to integrate new forms of money into their data-driven services ”. This has attracted enormous attention, including from public authorities such as the Bank of England, “who are now grappling with the thorny question of what regulatory framework should apply to non-bank issuers of private money.” ‘England is committed to making physical cash, i.e. banknotes, available as long as there is demand. “I don’t think the demand for liquidity will disappear completely anytime soon. But cash, and by extension public money, is becoming a smaller and smaller fraction of the money we use in the UK and increasingly unusable in a digital world ”. The question now might be this: if the state no longer directly provides electricity and water to the public in the UK why should it continue to provide money? Because any decision “cannot simply be based on the fact that the role of public money in society is in decline. It must be based on an assessment of the benefits of making public money available and usable, as well as the costs and risks of making it disappear. Such an assessment has not yet been done in the UK and no decision has been made to introduce a public digital currency or to use its technical name, a central bank digital currency or CBDC “. Ensuring trust in money” as a means of payment and store of value is crucial for financial stability. In previous centuries gold played that role and its symbolism has remained unchanged to this day. In modern times, in the UK, I think the state, in the form of the Bank of England and its bearer payment promise, can still provide this specific anchor. (…) A well-designed and effective public money alternative in combination with regulation, where necessary, would provide a more efficient and more robust response ”. In any case, even without the new technology-enabled forms of money that are on the horizon, “we are seeing accelerated changes in the way we live and transact that will greatly reduce and perhaps eventually eliminate the role played by public money. in today’s economy. We will not have to let this happen by chance ”.