Dr John Whittaker, a Senior Teaching Fellow in the Department of Economics, submitted evidence to the House of Lords Economic Affairs Committee for their ‘Central bank digital currencies: a solution in search of a problem?’ report.
The report was assembled after the Bank of England and HM Treasury created a joint taskforce to explore the potential of a retail central bank digital currency (CBDC), a digital banknote that could be issued by the Bank of England and used by households and businesses to make everyday payments.
Dr Whittaker, who specialises in monetary policy, banking and financial markets, told the committee that Bank of England would need to replace deposits withdrawn to buy the CBDC, by buying more government debt (similar to quantitative easing) or corporate debt, or by lending the funds back to the banks. All these options would likely lead to more expensive credit, particularly for banks’ higher-risk customers.
His evidence concluded: “The decision over whether the Bank of England should implement CBDC presents a trade-off: a doubtful improvement in payments efficiency at the cost of potentially more expensive retail borrowing.”
The Bank of England is one of more than 90 central banks exploring the possibilities of CBDCs, partly to combat the threat from potential digital currencies from big tech companies such as Meta, and partly because of the decline in the use of physical cash.
The committee’s report concluded no ‘convincing case’ had been made for a retail CBDC in the UK.