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The Bank of England has published a discussion paper and called for feedback on the use of cryptocurrency, including on potentially introducing its own.
Central banks across the world will need to create regulations to address a number of issues to ensure that society benefits from new ways of making payments.
Before new forms of digital money “could be used widely, there are issues around the safety of money and macro-economic stability that need to be addressed,” said the Bank of England paper.
The payments industry, technology providers, financial institutions, academics and other central banks are among the group the UK central bank wants to hear from.
Amid the public appetite for digital payments and the reduced use of cash, both of which grew during the Covid-19 pandemic when consumers avoided using cash, the regulator is looking at the potential use of cryptocurrencies.
“The use of physical cash in payments continues to decline, and demand for convenience – especially with regard to e-commerce – has fuelled public appetite for digital payments. Fintech firms, and in some cases big technology firms, are developing alternatives to traditional forms of money,” said Andrew Baily, governor of the Bank of England.
These include cryptoassets that have their value pegged to fiat currencies or exchange traded commodities, known as stablecoins, and the possible introduction of a Central Bank Digital Currency (CBDC), a digital form of central bank money.
“The [Bank of England] has not yet made a decision on its detailed regulatory approach to stablecoins, or on whether to introduce a CBDC in the UK. These questions will need to be considered in consultation with the government,” said Baily.
The Bank of England said the discussion paper is based on the premise that new forms of digital money have the potential to benefit society as a whole. “They could improve the way in which people transact with one another. And they could enable further innovation,” it added.
“Before society can realise potential benefits from new forms of digital money, it is essential that perspectives on these issues from a wide range of stakeholders are understood.”
Central banks across the world are having to device policies on the use of digital currencies, as consumers move away from cash as their main payment method. The pandemic accelerated the move to digital payments, which do not require as much physical contact and potential Covid-19 transmission.
A survey carried out by the Nationwide Building Society during the first UK lockdown in 2020 found that 50% of people thought they would use cash less in future, and 61% had started using other payment methods.
These included contactless payments, which, while cash payments have plummeted, have increased dramatically in the UK, accounting for 90% of all card payments in 2020.
Norway and fellow Nordic country Sweden are often cited as the countries closest to being cashless, and the pandemic has moved the country within touching distance of this.
In Norway, for example, less than 4% of spending in the country was made using cash in the autumn months of 2020 during the Covid-19 lockdown, according to a survey from Norges Bank, the country’s central bank.
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