In a significant address at the Group of Thirty’s 39th Annual International Banking Seminar in Washington, Bank of England Governor Andrew Bailey stressed the importance of modernising the UK’s payment infrastructure. Bailey highlighted the urgent need for reforms in cross-border and wholesale payment systems, where speed, cost-efficiency, transparency, and access remain pressing issues. He argued that leveraging digital technology is essential to address these challenges, emphasising the potential for improvements such as automated fund releases and advanced encryption to prevent fraud.
Bailey underlined that while both central bank and commercial bank money are integral to the current financial ecosystem, they play distinct roles. Retail payments can be made with either form, although central bank money anchors high-value wholesale payments and system settlements, supported by reserve accounts at central banks. This anchoring role, Bailey noted, is pivotal to the financial system’s stability, backed by state assurances.
On the question of innovation, Bailey argued that commercial banks should drive digital transformation in retail payments. Yet, he acknowledged the slow pace of change, particularly in cross-border transactions. Should commercial banks fail to innovate adequately, Bailey cautioned that central banks might have to step in to ensure that retail Central Bank Digital Currencies (CBDCs) fulfil the public’s needs. This outcome, while not his preference, remains a possibility.
In closing, Bailey called for a payment landscape that meets modern demands and avoids being stifled by entrenched market structures. By encouraging innovation within the bounds of financial stability, he envisions a future where digital technology can enhance payment systems without fundamentally altering the balance between central and commercial bank money.
