Over the past few years, interest in privately issued cryptocurrencies has stimulated a parallel discussion about whether central banks should issue a new form of electronic money in the form of a central bank digital currency (CBDC). A CBDC, possibly issued on a blockchain platform, would be a digital version of money which is a liability of the central bank rather than a commercial bank. Similar to cash and commercial bank deposits, a CBDC would be denominated in the sovereign currency and convertible at par with other forms of money.
The Bank’s assessment – like those of most other central banks – is that the case for issuing a CBDC for use by households has not been established. Another possibility is for a central bank to issue a CBDC that could be used by wholesale market participants in specialized payment and settlement systems. While the case for the use of a CBDC in these types of systems remains an open question, there are a number of potential benefits that could arise, such as:
- Speed, cost and robustness of payments. A CBDC fully integrated into a blockchain platform could enable payments to be made between participants in real-time and 24/7 without relying on external payment systems.
- Atomic transactions. A CBDC integrated within a blockchain platform could more easily allow for ‘atomic’ transactions. An atomic transaction is ‘all or nothing’, meaning that either all parts of the transaction are executed or none at all. When applied to delivery-versus-payment, this can reduce settlement risk as a payment and corresponding asset can be exchanged simultaneously.
- Programmable money. A CBDC in combination with smart contracts on a blockchain may enable new kinds of ‘programmable money’. This refers to the ability to attach conditions to how money can be spent or transferred, which could be automatically executed, without the need for a trusted third party.