The Governor of the Bank of England, Andrew Bailey, has reaffirmed his support for a retail central bank digital currency (CBDC), arguing that central banks are the “only game in town” as commercial banks lack the incentive to drive innovation.
In a speech delivered at a G30 seminar in Washington, Bailey emphasized the urgent need to modernize key payment practices for both domestic and cross-border transactions, encompassing both wholesale and retail sectors. He stated that banks must harness digital technology as an enabler, warning that failing to do so could reflect a “failure of imagination.”
While acknowledging that commercial banks are ideally positioned to lead innovation in retail CBDCs, Bailey expressed concern about their current pace of progress. “For me, this justifies why we must continue to prepare for retail CBDC,” he declared. “We have not yet seen enough evidence that innovation will occur within commercial banks. As central banks, we should actively encourage, and if necessary, facilitate such innovation.”
Bailey pointed out that the development of payment systems has created obstacles to innovation, sometimes due to concentrations of market power. “It is crucial that these structural factors do not hinder innovation,” he noted. “For commercial bank money to function effectively, it must evolve alongside the needs of its users. Our work on retail CBDC is closely examining these trends in the payments landscape. In the absence of innovation within commercial bank money, central banks may become the sole providers of retail payments innovation. While that is not my preferred outcome, it is a possibility that should not be dismissed.”