Major stakeholders and industry participants are collaborating on the use cases and design for a UK implementation. With momentum growing steadily, it will soon be less a matter of setting the agenda and more about keeping pace with new services launching tokenised money.

What does this mean for UK financial institutions and their customers? Let’s start with some context. CBDC is a third format of money alongside cash and commercial money deposits. Contrary to popular perception, a CBDC can take many different forms, and need not necessarily be a blockchain-based cryptocurrency.

In designing a CBDC there are a wide range of considerations to take into account, many of which present trade-offs. It’s vital to explore and understand these design considerations to ensure the Central Bank’s long-term objectives can be met. We have already seen significant variations in the design of CBDCs cross the world, as the likes of Sweden, China and Nigeria take their first steps towards creating them.

A CBDC makes it available at scale to the wider public. This is a change that’s likely to yield benefits across a diverse range of use cases, from day-to-day payments for goods and services to inter-governmental transfers to securities trading.

We believe three initial use cases will quickly come to the fore:

• The process of distributing stimulus payments to support the Covid-19 recovery has underlined the need for an effective mechanism for the disbursement of central funds. Distributed access to digital Central Bank money is not currently possible in the UK. In times of national crisis where mass payments must be made to the population at large to keep society functioning properly, a CBDC would serve the purpose and as a sovereign independent national payment rail for the UK.
• It is hard to imagine a UK CBDC not having a significant effect on retail payments – particularly in strengthening the existing ecosystem by providing an additional, independent payments rail, and in creating better experiences and outcomes by supporting new features such as programmable money*.
• The international payments market is currently experiencing disruption from FinTechs with proprietary correspondent banking networks. A CBDC offers the opportunity to disintermediate these entirely, making cross-border payments significantly cheaper for the end-user while also benefitting from programmability

As the UK sets out on its CBDC journey, the great news is that we have a strong starting point to embark from. This is due to several factors including our existing robust financial infrastructure, our pervasive popular culture of digital banking and payments, and rapid development of our tokenised money industry to date. These suggest that the UK is ready for a renewed approach to money powered by CBDC. What’s more, we can already begin to hypothesise on the design of a UK CBDC.

In our view, the time is right to take the next step and uncover the full potential of a UK CBDC. Contact us to find out more about potential use cases, design considerations and policy implications.

Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors.

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