The heated debate about introducing a central bank digital currency (CBDC) in the western world continues with fervor in 2023. Whilst many nations see great potential in digital fiat, several remain hostile or at least indifferent.

Despite the UK being touted as being more crypto-friendly since the premiership of Rishi Sunak began, all may not be what it seems.

This week, Bank of England’s Governor, Andrew Bailey, questioned the need for a digital pound in front of the parliament’s Treasury Select Committee. Meanwhile, its European counterparts appear to be pressing ahead with legislation that will pave the way for a digital euro.

So, with other nations forging ahead with CBDCs, can a post-Brexit Great Britain need a digital pound to stay competitive, or are others getting "carried away by the technology and the idea"?

BoE Governor Is Skeptical

“I think it’s an open question whether a wholesale digital central bank currency is needed because we’ve got a wholesale central bank money settlement system with a major upgrade,” Bailey said.

The “settlement system” he referred to is the real-time gross settlement system (RTGS), which holds the accounts of Britain’s banks, building societies, and other institutions. The central bank is in the process of upgrading this system.

Moreover, Bailey was concerned over the retail use of the digital pound as the British central bank does not have any plans to abolish cash circulation. “We have to be very clear what problem we are trying to solve here before we get carried away by the technology and the idea,” he said, questioning the “need [for] this sort of upgrade at the moment.”

“Currently, there are two forms of CBDCs, wholesale and retail,” Bradley Allgood, the CEO and Co-Founder of Fluent Finance, explained to Finance Magnates. “Wholesale systems like FedNow and other instant payment systems already exist, offered by central banks as a quick and effective way of settling payments between wholesale. Retail CBDCs, on the other hand, are CBDCs that bridge directly over to the consumer. Even though retail CBDCs have multiple benefits such as faster transaction times, reduced costs, etc., central banks are not likely to issue retail CBDCs to avoid taking business away from commercial banks.”

Check out the FMLS22 interview with UK MP Lisa Cameron, discussing "Crypto Hub in the Making."

The UK Is in Preparation for a CBDC

The HM Treasury and the Bank of England formed a joint task force in 2021. The UK Prime Minister Chancellor Rishi Sunak, who was then Chancellor, even unofficially coined the term “Britcoin” for a digital pound.

On top of that, the UK central bank is studying the feasibility of launching a digital fiat with multiple other global counterparts.

Is the Governor Right or Wrong?

Meanwhile, Bailey is not alone in questioning the need for a digital pound. Last year, an all-party committee of the United Kingdom’s House of Lords warned about the concerns of financial instability from the proposed CBDC launch.

“We took evidence from a variety of witnesses, and none of them were able to give us a compelling reason for why the UK needed a central bank digital currency,” Lord Forsyth of Drumlean, the Chair of the Economic Affairs Committee, said earlier. “The concept seems to present a lot of risk for very little reward. We concluded that the idea was a solution in search of a problem.”

However, the industry leaders have a different opinion of a potential digital pound than the ones of the BoE Governor or the Economic Affairs Committee at the House of Lords.

“Banks are struggling to keep up with the pace of change and are worried about being left behind. They currently benefit from huge revenue streams and want to protect the status quo, at any price,” Lars Holst, the Founder & CEO at GCEX, said to Finance Magnates. “However, the UK has one of the most inefficient retail banking systems in the world. The Bank of England needs to embrace innovation and find new ways to give consumers and corporates easy access to payments. The Digital Pound would propel the UK forwards.”

“Confidence in sterling and the UK economy isn’t exactly at its highest at the moment, but we won’t change anything tomorrow if we continue to do what we did yesterday. The UK needs change.”

Tom Higgins, the Founder & CEO of Gold-i and Crypto Switch, said: “If the UK wishes to be a crypto powerhouse, then we should embark on key digital asset technological advancements as competing regions are… If we, the UK, delay, then we will never fulfill this dream of being dominant in digital assets.”

Eurozone Is All for a Digital Euro

While the top central bank official of the UK is skeptical about the digital pound, the lawmakers in the eurozone are seemingly in favor of bringing in a digital euro. The European Union is expected to publish a draft law this year to accommodate the digital euro into the existing laws.

“The Eurogroup considers that the introduction of a digital euro, as well as its main features and design choices, requires political decisions that should be discussed and taken at the political level,” the EU ministers said in a joint statement. Moreover, they believe that a digital euro is going to complement, and not replace, the euro circulation.

Higgins added: “The EU is very well advanced with its plans for developing a CBDC, and if the UK delays, the EU will get there first. I expect that the EU will look at early 2024 to launch, which is not far away.”

Holst also pointed out that the “payment and clearing is increasingly moving out of the UK to the Eurozone [and] the UK will be left even further behind if there is a digital euro and not a digital pound.”

However, when it comes to digital fiat development, Asian countries are far ahead. China looks to be at the forefront with its mass digital yuan pilots. Other developed jurisdictions like the UAE, Singapore, and Hong Kong are also advancing towards developing digital fiats.

“I think we’ll see this kind of innovation coming from the UAE or an Asian country such as Singapore or Hong Kong before we see it in a western economy. I think we’ll see the first digital fiat within the next two years, possibly even by the end of 2023,” said Holst.

However, the industry looks confused with the launch timeline of digital fiat without proper guidance from the regulators.

“I see that that the process of launching a central bank digital currency is long and has many aspects to consider,” said Simone Mazzuca, the CEO and Founder of Wallex. “So far, most governments are exploring the idea of a digital currency and working on it. I do not see it happening though any time soon. I believe that what is more likely, that governments and central authorities work with private digital currency issuers.”

The Bank of England Governor is not alone in being skeptical of digital fiat. However, a significant part of the world, including the eurozone, is seeing potential in launching a CBDC; nothing is finalized, though. So the British central bank now has to decide whether to keep its faith in the existing currency circulation or take a leap toward technological-advancement and start preparations for a digital pound, at least the pilots