In such a world the right of the holder and the obligation of the issuer to be able to convert all private money into Bank of England digital money at par and on demand would secure the anchor currently provided by cash. The second consideration is to ensure that there can be competition and innovation in the development of new functionalities using tokenised money. Given the network externalities around money and the likely cost of developing robust and risk managed private tokenised money like stablecoins, it is possible that the development of digital settlement assets will converge on a few large players who will dominate and perhaps control innovation in payment services. We have seen a similar dynamic in the emergence of large internet platforms and marketplaces[18]. The Bank and Treasury consultation paper proposes a ‘platform’ model of the Digital Pound in which the Bank would provide the digital settlement and central transfer mechanism and the private sector would provide the wallets and consumer facing payment services. The Digital Pound would therefore be available to a wide variety of private sector innovators who wished to develop tokenised payment related services but do not wish or are not able to issue their own tokenised settlement asset. There are many other extremely important considerations, such as privacy and financial stability, around the possible introduction of the Digital Pound. These are discussed in the consultation paper and I do not want to detail them today.
There are I think strong arguments to keep these two models separate and require banks that wish to issue payment stablecoins under the new regulatory regime to do so through legally remote and otherwise distinct entities. I want to turn now to the third potential development: the issue of a central bank digital currency either for retail or for wholesale purposes. As many here may know, the Bank and HM Treasury published a consultation paper in February on the Digital Pound – a Sterling digital currency that would be issued by the Bank of England for general purpose retail use. No decision has been taken to implement the Digital Pound but the Bank and Treasury’s assessment is that it is likely to be needed if current trends in payments and money – some of which I have been discussing – continue. This assessment rests on two main considerations. The first is the need to anchor the value and robustness of all monies circulating in the UK. Physical cash issued by the Bank plays an anchoring role at present in a world in which only commercial banks issue private money. If future trends continue, cash use is likely decline further and cash itself will become less is useable in all everyday transactions, for example if internet commerce grows and if merchants increasingly accept only digital payment. At the same time, new, non-bank players are likely to enter the scene, issuing private money, such as stablecoins, for payment purposes.