Will Banks Survive? Bank of England Prepares to Launch CBDC if Innovation Stalls

The Bank of England cautions it could deploy a digital currency if commercial banks falter, signaling a potential upheaval in the future of money.

Digital Payments Showdown: BOE Set to Roll Out CBDC if Banks Slip Behind

Bank of England (BOE) Governor Andrew Bailey shared his outlook on the evolution of digital payments in a speech at the Group of Thirty’s Annual International Banking Seminar in Washington on Saturday, underscoring both the need for updates and a potential role for central bank digital currencies (CBDCs).

The BOE governor highlighted digital technology as a possible answer to long-standing challenges in cross-border and wholesale payments, suggesting that modernization could boost efficiency, cut costs, and improve transparency. He noted that while commercial banks are best placed to drive innovations in retail payments, a CBDC might be required if they fall behind.

Although Bailey prefers commercial banks to lead advancements in retail payments, he acknowledged the necessity for central banks to step in if innovation stalls. The central bank governor opined:

But if for some reason innovation is unlikely to happen, then the central banks have to decide whether they are the only game in town. For me, this justifies why we must continue to prepare for retail CBDC. We have not yet seen enough evidence that the innovation will happen in commercial banks.

“As central banks, we should be thoroughly engaged to encourage, and if necessary, provide such innovation – but there is no good reason to be proprietorial on this,” he added.

The Bank of England is closely tracking developments in payment technologies and user preferences, according to Bailey.

“For commercial bank money to function effectively, it must keep pace with the needs of its users. Our work on retail CBDC is considering these trends in the payments landscape closely. Absent innovation in commercial bank money, central banks may be left as the only game in town insofar as retail payments innovation is concerned,” he stated, noting:

That is not my preferred outcome, but not one that we should rule out.