Page 1  The digital pound − speech by Jon Cunliffe Given at UK Finance  Page 2  Published on 07 February 2023  Jon Cunliffe says it is likely that a retail, general purpose digital central bank currency - a digital pound - will be needed by the end of this decade. He discusses why this is the case, what the model could look like and how the digital pound may sit within the digital payments landscape. Speech As some of you may have seen, the Bank of England and the Treasury have today published, as a Consultation Paper, the report of the Bank of England – HM Treasury Taskforce on the introduction in the UK of a central bank digital currency – a ‘digital pound’. So I am grateful for the opportunity today to set out some of the thinking behind the report and the next steps we propose. First, however, I should set out the headline conclusions of the Taskforce. Our assessment is that on current trends it is likely that a retail, general purpose digital central bank currency - a digital pound - will be needed in the UK. This would be a new, digital form of money, issued by the Bank of England for use by households and businesses for everyday payments. A digital pound would be a very substantial financial infrastructure project that would take several years to complete.
As a result, the household sector’s financial condition today is in unusually good shape for this point in the economic cycle. In relative terms, household indebtedness is low, and—thanks in part to low interest rates—debt service burdens relative to household income have fallen to levels not seen since at least the early 1980s. As we will show in today’s presentation, compared to 2008, a greater proportion of overall debt today is now held by older households that have higher and more stable incomes and more experience as borrowers, on average. Consequently, a much larger proportion of debt is currently held by borrowers with higher credit scores. The resulting higher overall debt quality is reflected in historically low overall delinquency rates. Transition rates into new delinquency are below the levels of the early 2000s, and foreclosure and bankruptcy rates in 2016 are the lowest since our data series began in 1999. Notwithstanding this overall rosy picture, the improvement in aggregate debt quality and performance conceals important underlying changes in debt holdings that could be consequential, with implications for the housing market and for consumer spending over the longer term. While older borrowers hold more debt of all types, there has been a significant shift among younger people toward student debt and away from mortgage and other debt. Student debt has increased more than fivefold over the past 14 years, with more young adults taking out loans and borrowing larger average amounts. And, while debt delinquency rates overall have fallen, those for student debt have remained elevated.