In March 2020, the Bank of England published a new discussion paper on Central Bank Digital Currency (CBDC) – an important step towards an official launch. But the Bank’s paper lacks an answer to the most important question we have: will a CBDC be safe, fair and accessible for everyone?
In the article below, we provide a summary of our response and an overview of our research on digital money, explaining why publicly provided payments should be at the heart of our vision for a fair, democratic and sustainable economy.
The Bank of England’s discussion paper on CBDC is a clear signal that they are seriously considering launching a digital currency in the next few years. By making a formal response to the Bank’s paper, we’re seizing an important opportunity to guide the Bank towards making the right choices about how CBDC should work. Positive Money has been publishing research and running campaigns in support of this very idea for over a decade, so we’ve got lots of great research on the subject to back up our arguments.
Under the current system, the only form of public money we have is cash. Without it, we’d have much less democratic control over our payments system, but so far the Bank hasn’t gone nearly far enough to protect cash.
In 2016, we set out why the Bank of England should issue a digital form of public money in our Digital Cash paper. For the first time, people would be able to open accounts with the Bank of England, and use public money to pay by card and shop online. These accounts would also be the perfect way to send out payments of helicopter money: the Bank of England could create new money and share it out to households and businesses. Then people could use the money to pay down debts, top up their savings, or increase their spending – and help the UK recover from the 2008 financial crisis.
We built on this argument in our 2018 paper The Future of Cash, making the case that access to public money should be recognised as a universal need, like water or electricity. We made it crystal clear that access to physical cash – notes and coins – should be protected, and digital public money should compliment cash rather than replace it. And to make our payment system truly inclusive and accessible, The Bank of England should coordinate with the Treasury to establish a public payments company. This organisation would be tasked with providing payment services for people who are being excluded or exploited by private payment providers.
But central banks around the world were still voicing concerns about CBDC. The biggest fear they had is that CBDC might be so competitive that it would make current accounts with private banks obsolete. In the worst case scenario, they worried people would move money away from private banks into CBDC accounts so fast that it could cause a financial crisis in the banking sector. The technical term for this is “private bank disintermediation”, and it’s the main reason central banks are so cautious about launching their own digital currencies.
We knew that if we were going to persuade the Bank of England to design CBDC in the right way, we needed to add some safety measures into our proposal that would protect the financial system from this kind of crisis. But we refused to settle for a CBDC that would fail to take away the power private banks have over our payments.
So in Money We Trust, a new paper we published in April this year, we took a different approach. We explained how CBDC could be designed to be highly controllable by the Bank of England. By applying an interest rate to CBDC, and making that interest rate very depending on how much CBDC was in a given account, the Bank of England would be able to discourage dangerously large flows of funds out of private banks and onto the Bank of England balance sheet. This would ensure financial stability was protected, but an overall shift away from private banks could still happen over time, as long as the transition was conducted safely.
Now that we’re facing a public health crisis and a global economic downturn, the need for a more inclusive payments system is greater than ever. Cash withdrawals have fallen by 60% during the Covid-19 lockdown. More and more bank branches have been closing down, along with many thousands of cash machines. This sudden cash collapse is putting vulnerable groups at risk – including the elderly, people isolated in rural areas or on lower incomes, and even survivors of abuse. In 2019, the independent Access to Cash Review found that “around 17% of the UK population – over 8 million adults – would struggle to cope in a cashless society.” So while private payments systems like bank accounts, mobile apps and credit/debit cards might seem simple and convenient, we should remember that they are a privilege that not everyone has access to.
Private banks and big tech companies want a free pass to reap the benefits of digital money. Without cash, people will be forced into using the private payment platforms that they control instead. That means they can collect all our personal payments information, charge whatever they think we can afford for their services, and make as much money as possible.
To stop all that from happening, The Bank of England has to step up. They need to protect physical cash and launch a CBDC. A public company that provides payment services to everyone who needs them would be transformational – and a huge step towards ending the unjust dominance of high street banks over our economy once and for all. And this is exactly what we told the Bank in the formal response we submitted in June.
Without people-powered organisations like Positive Money coming forward and speaking up, the Bank of England will only be hearing from big banks and vested interests when they make these huge decisions.
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