• Bank of England and MIT enter a partnership on CBDCs
• There is still no decision on a CBDC for the UK
• Countries across the world continue to explore CBDC adoption
On Friday, the Bank of England (BoE) – the central bank of the United Kingdom – announced a partnership with the Media Lab’s Digital Currency Initiative (DCI) of the Massachusetts Institute of Technology (MIT). This partnership goes towards research to explore CDBC technology and is expected to run for 12 months. It aims to investigate the potential problems, risks, and benefits of an electronic token system in the UK.
As the name implies, Central Bank Digital Currencies (CBDCs) are digital tokens created and distributed by a central bank. A CDBC reflects the same value as a country’s fiat currency and can serve as a medium of exchange, a unit of value, and a means of debt settlement. Even though they share many similar characteristics, CDBCs are not cryptocurrencies. Unlike cryptocurrencies, CDBCs are centralized and subject to regulation by the issuing central bank.
Bank of England remains undecided about a digital pound sterlings
The “Old Lady,” as the Bank of England is popularly known, stated that this research does not indicate any plans to develop a digital pound. “This work is focused on exploratory technology research and is not intended to introduce an operational CBDC. No decision has been made on whether to introduce a CBDC in the UK, which would be a major national infrastructure project,” read a statement from the bank.
It is worth noting that the Bank of England started researching CBDCs in 2020. In fact, the banking institution released a discussion paper on CBDCs on 12 March 2021. BoE’s discussion paper drew a response out of MIT’s DCI- a discussion paper detailing how a CBDC would support the bank’s goal of preserving financial and monetary stability. On 19 April 2021, the bank and Her Majesty’s Treasury put up an investigative task force on the novel technology, and the most recent discussion paper was made public on Thursday.
While the debate of a digital pound rages in the United Kingdom, the House of Lords Economic Affairs Committee has applauded the idea of a Central Bank Digital Currency, tipping it to be a better medium of exchange for international transactions. However, the committee also expressed concerns over the token’s stability and protection from online threats such as hackers.
As the world evolves into a cashless economy, many nations have adopted this invention. So far, nine countries have developed a fully operational CBDC, the latest being the Federal Republic of Nigeria. The West African country launched its e-naira on 25 October 2021. Currently, there are 60 countries researching CBDCs, with many more expected to join the financial trend.