Cash is going to disappear, a senior Bank of England official said as he backed the creation of a state digital currency.
Jon Cunliffe, the Bank’s deputy governor, said there were already places in London that did not accept cash even for physical transactions.
His comments came as the Bank considers plans to launch its own state-backed version of a digital currency.
Speaking on The Swap podcast, Mr Cunliffe said the rise of online commerce and the popularity of contactless credit cards was already squeezing the use of cash. He said authorities would need to adapt to ensure there was always a prominent state-backed financial system in the future.
“Central bank state-issued money is disappearing,” he said. “It’s no longer a full service settling assets. There are places in London where you can’t use it in face-to-face transactions.”
Growth in ‘decentralised’ cryptocurrencies
There has been explosive growth in “decentralised” cryptocurrencies, such as Bitcoin, over the last decade. The technology allows an online ledger of digital transactions to be kept in multiple places so cryptocurrencies cannot be fraudulently meddled with.
There is a possibility that cryptocurrencies could eventually wrest control of currency and the money supply away from governments and central banks if they replace traditional cash. However, cryptocurrencies are not widely used as tender because they fluctuate in value and are not widely accepted as a payment method.
Mr Cunliffe’s remarks have been seen as part of an effort by policymakers to gain backing from politicians and the public for a new state-backed digital currency, nicknamed “Britcoin”.
Supporters of the idea argue that such a digital currency could offer people something as secure as cash and as flexible as online as cards and crypto currencies. Unlike deposits in banks, “Britcoin” would carry the explicit backing of the Government and would be designed to work with online payment platforms as well as evolve with technology.
“These technological developments won’t stop just because we don’t provide a CBDC [central bank digital currency],” said Mr Cunliffe. “Cash is going to disappear, and the question is going to be what role can a CBDC play.”
Warning of a hit to banks
He said people think of money as pound coins or dollar notes and need the safety of a government-backed currency in times of stress. A CBDC could perform the same role as cash without requiring consumers and businesses to handle the bulk of paper bills.
“On the downside, there will be a hit to banks,” Mr Cunliffe said. “If people move their deposits into CBDC there will be a hit to banks, and banks will have to adjust. People will use it, but you don’t want them to use it in such a disruptive way that we can’t adjust.”
Rishi Sunak, the Chancellor, said earlier this year that he was yet to make a decision on “Britcoin” but that any UK-backed digital currency would not replace cash and would instead act as a “complement” to it.