Looking back at 2021 for clues as to what to come

Share this!

Authors: John Velissarios (Accenture) and Jannah Patchay (Digital Pound Foundation)

Digital finance saw incredible growth last year. At Accenture, we saw our digital exchange clients get their licenses to operate. We have been driving projects with leading central and commercial banks to re-architect the geography of wholesale central bank digital currency settlement and have been working with leading central banks to pilot retail CBDC from the Nordics to Eurasia. For the Digital Pound Foundation, we were proud to launch formally in October 2021 with a fantastic group of foundation and associate members – including Accenture, AvaLabs, Billon, CGI, Electroneum, Ripple, and Quant – alongside our originating members. 

There were plenty of big developments in this space, spanning the full spectrum of digital assets and digital currencies and involving actors ranging from central banks to commercial banks, exchanges and other financial market infrastructures.

By the end of 2021, China’s digital yuan pilot had reached 18% of the population with 261m users, while most of the world’s central banks are now either researching, piloting or implementing their own central bank digital currency projects. As this new area unfolds and matures, commercial banks are also looking to issue or oversee digital assets and stablecoins.

Some topics continue to be widely debated, including ones raging over wholesale versus retail, the merits of token versus account, public versus private ledgers, levels of privacy and anonymity, and if non-residents will be allowed to transact using domestic CBDC, among many others. The focus of attention is shifting quickly and the market is responding with new articles, reports or white papers being published almost daily.

With change comes both challenges and opportunities. For those institutions that have built a business around the friction that these new developments are intended to overcome, there will be resistance. For those that will benefit from this change, it couldn’t come soon enough. What is clear is that lines are being drawn and new debates will play out in the coming months and years.

Innovation in new forms of digital money is not just about technology but also the potential strategic and economic impacts, and what it will enable for citizens and the wider economy. Retail, wholesale and cross-border applications of new forms of digital money may transform financial markets. Those who can harness this innovation in an optimal way will benefit the most.

In the UK, 2021 began with the Treasury launching of its consultation on the UK regulatory approach to cryptoassets and stablecoins. The consultation sought to obtain respondents’ input on a range of questions related to the classification of digital assets, the application and potential extension of the regulatory perimeter and, specifically, the treatment of certain types of stablecoins, including those deemed to be of potentially systemic importance. The findings from this consultation have not yet been published, but many will be watching eagerly for the first indications from the Treasury as to how the UK’s regulatory regime might be extended and strengthened to accommodate specific characteristics of digital assets. This would represent the first significant step forwards for digital asset and stablecoin regulation since the Financial Conduct Authority’s publication of its guidance on cryptoassets, which covered the application of the existing regulatory perimeter to various classes of digital assets, in July 2019.

Following its 2020 one on retail CBDC, the Bank of England issued its discussion paper on new forms of digital money in June 2021. This new paper provided an insight into the Bank’s considerations with respect to the role of public and private forms of digital money, the potential prudential regulatory considerations with respect to the latter and the impact that both might have on the banking system, particularly as to the potential outflows of commercial bank money and the associated implications for credit creation. Sir Jon Cunliffe’s speech at the OMFIF Digital Money Institute in May 2021 provided further context to the questions vexing UK policy-makers,  especially in terms of the future positioning of the UK on the spectrum of public and private money more broadly. 

In April 2021, the Treasury and Bank of England announced the formation of their joint CBDC taskforce to coordinate the exploration of a UK CBDC. This was followed by the establishment of the Bank of England’s CBDC engagement and technology forums in September 2021, aimed at engaging a range of industry stakeholders to gather strategic input on policy considerations, functional requirements and technological aspects of CBDC. New forms of digital money were firmly on the agenda of both policy-makers and the central bank, it seemed. The Digital Pound Foundation launched in October 2021, with the aim of creating an independent forum for advocacy and co-operation around the introduction of a well-designed digital pound and creation of a healthy and diverse ecosystem for new forms of digital money.

Following its call for evidence on CBDC, the House of Lords economic affairs committee published ‘Central bank digital currencies: a solution in search of a problem?’ in January 2022. While appearing to pour lukewarm water on the concept of retail CBDC in particular, it is notable that the output of the report represents less a directive or even a recommendation to policy-makers and legislators and more the posing of a set of questions to be answered by the CBDC taskforce. Many of these, it has been observed, are already either well within the scope of the taskforce or have been covered extensively elsewhere in the Bank of England’s publications.

CBDC, digital money and digital asset projects, initiatives and businesses will take time to implement and grow. With that said, we expect more of the same in 2022, perhaps with less hype but with more concrete intent to materialise the value and benefit these new innovations can bring for those that will be their pioneers. Environmental, social and governance topics will play an increasingly important role and the complementary combination of these topics may create the optimal mix that will promote adoption. We expect to see more pilots and live implementations, more products and more activity and, ultimately, see more change as these innovations mature.

Join our mailing list

We publish new content on a daily basis, from articles and blogs to webinars and podcasts. Community members receive a single roundup each month, PLUS invitations to our online and in-person events. Of course, you can change your preferences at any time!

Make an enquiry​

We'd love to hear from you!