Cash is disappearing from the UK economy, a Bank of England (BoE) official said, arguing for a new form of digital currency.
Central bank deputy governor Jon Cunliffe said technology, including the internet, and the popularity of credit and debit cards are reducing the role cash plays in transactions. The authorities, he said, will have to adapt to keep some kind of state-backed money at the forefront of the financial system.
“Money issued by the central bank is disappearing,” Cunliffe said on the International Swaps and Derivatives Association’s The Swap podcast.
“It’s no longer a full-service asset settlement service. There are places where you cannot use it in face to face transactions.
The remarks are part of an effort by policymakers to bolster politicians and consumers’ support for a new form of money that could be as secure as cash but as flexible and useful online as cards and crypto. -coins.
The BoE and the Treasury, along with other central banks around the world, are considering whether to adopt a “central bank digital currency” (CBDC) that would substitute for cash. Unlike deposits in banks, the CBDC would benefit from explicit government support. It would be designed to work with online payment platforms and evolve with technology.
Cash was the main means of settling transactions in the UK until 2016. It has since crept behind cards and other forms of payment, a BoE document showed in July. The pandemic has accelerated the trend.
“These technological developments won’t stop just because we don’t provide CBDCs,” Cunliffe said. “The money is going to disappear, and the question is going to be what role can a CBDC play.”
He said people see money as coins or dollar bills and need the security of a government backed currency in times of stress.
The CBDC could play the same role as cash without forcing consumers and businesses to handle the bulk of paper bills.
“On the other hand, there will be a big blow to the banks,” Cunliffe said. “If people move their deposits into the CBDC, banks will be affected and banks will have to adapt. People will use it, but you don’t want them to use it in such a disruptive way that we can’t adapt.