July 10, 2023 - 6:45pm

The introduction of a retail central bank digital currency (CBDC) would be “a major step” for the British economy, Bank of England Governor Andrew Bailey said in a speech tonight. At the annual Mansion House dinner, at which Chancellor Jeremy Hunt also made an address, Bailey nonetheless stressed that the Bank of England “will continue to produce banknotes” and that far from moving to an entirely digitised system, “cash is here to stay”. 

Bailey and his counterparts at the Treasury floated the idea of a digital pound in February of this year, and the following month Bank of England Deputy Governor Sir Jon Cunliffe claimed that the introduction of a British CBDC is “likely”. Since then, there has been widespread concern expressed about the surveillance and censorship possibilities a digital currency might bring, while last week financial services minister Andrew Griffith warned that “we should proceed cautiously”, given potential issues with privacy. 

The Governor’s speech went on to refer to Bitcoin as “highly volatile and best treated as an extremely speculative investment”, as well as having “no intrinsic value”. Meanwhile, stablecoins, cryptocurrencies pegged to an asset such as gold or fiat, are, in Bailey’s words, “not robust and, as currently organised, do not meet the standards we expect of safe money in the financial system”. Both unbacked cryptocurrency, Bitcoin being the most prominent example, and stablecoins “are not money,” he said.

“The Chancellor and I have always been clear that the introduction of a retail CBDC would be a major step,” Bailey said, “and that there should be a public debate about the future of money in the UK.” He acknowledged that, while some of the public response has been positive, indicating that “retail CBDC can be a real breakthrough in the world of digitalisation”, other people and bodies have raised concerns “about a desire by the authorities to reach into people’s privacy”. Such a move “is absolutely at odds with what we should do, and indeed would”.

Nonetheless, he said, “under the new Financial Services and Markets Act, the Bank of England and FCA will have new powers to ensure the future effectiveness, resilience, and sustainability of the cash system,” adding, “cash is here to stay.” 

Bailey, who has served in his role since 2020 when he succeeded Mark Carney, has been vocal about the possibilities of digital currencies throughout his time at Threadneedle Street. In November 2021 he gave evidence at the Economic Affairs Committee in Parliament, claiming that a CBDC would provide a better alternative to stablecoins with “money-like features which could be regulated”. A year previously, he also criticised stablecoins at a European Central Bank panel.

China has come closest to fully implementing a CBDC, moving towards incorporating the digital yuan within its domestic financial system. If fully realised, it has been touted as a possible challenge to the US dollar in the international markets. That it is China, with its authoritarian government and alleged human rights abuses, pioneering the currency has highlighted the possibility that a prospective digital pound would be used to limit privacy and freedom.

In his Mansion House speech, the Bank of England Governor concluded that “what the history of the City suggests is that there is a great capacity to move on from past successes and seize the opportunity to get out in front again. We have that opportunity again with the digital world, but we need to take it.”

Rob Lownie is UnHerd’s Assistant Editor, Newsroom.