The Bank of England has published a new paper titled “The Role of Central Bank Digital Currency in an Increasingly Digital Economy“. The paper examines the potential benefits and implications of introducing an unremunerated retail central bank digital currency (CBDC) against the backdrop of declining cash usage and growing online transactions in the UK.
The paper highlights significant shifts in payment habits over recent years, with cash transactions decreasing dramatically and digital payments, such as debit and credit cards, becoming more prevalent. Simultaneously, the share of online retail sales has surged, rising from under 5% in 2008 to over 25% by 2023, reflecting the increasing digitisation of the economy.
Central to the discussion is the question of whether a CBDC could ensure that central bank money continues to play a relevant and accessible role in a modern, cashless society. The paper explores how a retail CBDC might act as a digital complement to cash, potentially addressing concerns about its diminishing role as a “monetary anchor” underpinning confidence in private money.
The study also delves into the factors driving the trends in cash usage and online sales. By calibrating a theoretical model to UK data, the paper offers insights into the potential welfare implications of a CBDC. It suggests that a CBDC might help reduce inefficiencies in digital payments and level the playing field between physical and online retailers, but it also raises questions about whether the private sector’s progress in payment technology might already address these challenges.
While the paper outlines the potential benefits of a CBDC, it leaves open questions about its necessity and effectiveness. Could a CBDC truly address inefficiencies in the payment landscape, or are these already being resolved by technological advancements? How might the welfare implications of a CBDC vary depending on the drivers of declining cash usage?
