Hasty digital pound rollout could mean 'weak and fragile systems,' says BoE

Tom Mutton, head of fintech at the Bank of England. Image: Sibos
Tom Mutton, head of fintech at the Bank of England speaks at Sibos. Image: Sibos

The Bank of England's (BoE) fintech lead Tom Mutton has stressed that the bank was keeping an "open mind" on the rollout of a digital pound as it explores a central bank digital currency (CBDC), but that hasty implementation could lead to "bad outcomes".

Speaking at SWIFT's SIBOS 2021 conference on the panel “CBDCs through the bankers’ lens — challenge or opportunity?” Mutton said the bank is "very enthusiastic about" wholesale CBDC, noting that it has "actually been around for some time."

Retail CBDC would be another matter for the central bank, he said, and a "big step" which has to be thoroughly explored before a decision is taken.

"People's payments needs may evolve quickly and in ways we can't anticipate," said Mutton, comparing the leap to how smartphones have changed the payments landscape. "We should be open minded on innovation," he said.

Interest in CBDC has evolved from the growth of decentralised digital currencies such as bitcoin (BTC-USD) and ethereum (ETH-USD), which have taken markets by storm.

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CBDCs represent a new frontier for central bank stimulus, potentially acting as a conduit for policies such as stimulus checks, emergency loans, and universal basic income (UBI). With CBDCs, central banks could induce more powerful, directed "money drops" to stimulate the economy rather than tinkering with interest rates.

Alongside other industry leaders on the panel, Mutton also stressed that in the implementation of any digital currency, central banks "must avoid fragmentation" and "interruptibility".

"We have a very steady framework around private money and infrastructure which is the foundation of our two-tier monetary system," he said, adding that digital money must conform to the same standards.

Fragmentation leads to "bad outcomes and weak and fragile systems," said Mutton.

Last month, the BoE moved to the next stage of its scoping for a digital currency, appointing representatives from ASOS (ASC.L), Spotify (SPOT) and PayPal (PYPL) to its Engagement and Technology forums.

The creation of these groups was announced in April 2021, alongside the CBDC Taskforce which coordinates the exploration of a potential digital pound.

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The bank's Engagement Forum consists of senior stakeholders from industry, civil society and academia to gather strategic input on policy considerations and functional requirements pertaining to CBDC.

The forum will have an important role in helping the Bank and HM Treasury understand the practical challenges of designing, implementing and operating a CBDC.

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