the digital pound − speech by jon cunliffe given at uk finance 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. it would, as many in this audience know, have major implications for the way we transact with each other and, more broadly, for the financial sector and the economy in general. the taskforce ’ s conclusion is that we are not yet at a point where a firm decision can be made to implement a digital pound. however, in view of the likely need and the lead time to introduction, the bank and the treasury, will now proceed to the next stage of detailed policy and technical development of the digital pound - including the development of a technical blueprint. this stage will take around two to three years following which a decision will be made whether or not to proceed to the next stage and implement a digital pound in the uk. the work over the next two to three years will inform that decision and will reduce the lead time to launch should the decision at the end of this stage be to implement the digital pound in the uk, which could then be introduced in the second half of the decade. in this next stage of detailed policy and technical work, including the development of a technical blueprint for the chosen model of the digital pound, we will work closely with private sector partners on proofs of concept, experimentation

that while the recent experience may have made us a bit more confident about detecting bubbles, it has not resolved the problem of doing so in a timely manner, nor has it shown that small - to - modest policy actions will reliably and materially dampen speculation. an extra policy reaction to changes in asset prices thus still remains questionable. the second frontier to be mentioned tonight is related to the monetary policy implementation, current situation on the money market and financial stability of the banking sector. for years the monetary policy implementation was not an issue and central banks were able to tighten the short - term money market interest rates such as for instance 3m pribor closely to the key policy rate. unfortunately, this changed in august 2007 for the us interest rates when the 3m libor for the us dollar denominated funds started to deviate significantly from the federal reserve target for funds. a year later following the second round of the financial crises that peaked during the bankruptcy of lehman brothers also the czech short - term money market rates started to elevate well above our policy rate, the two week repo rate. quoted from speech of vice chairman donald l. kohn : “ monetary policy and asset prices revisited ” at the cato ’ s institute 26th annual monetary policy conference, washington, d. c., on november 19, 2008. what we know is that all these movements were caused by principal uncertainty among the commercial banks worrying about their solvency and financial stability. the banks were not sure among themselves about to what extent they were hit by the collapse of the market with asset - backed securities and consequently about their counterparts ’ ability to stay in the business over a longer period than one day. central banks reacted and extended the money market operations in order to narrow spreads between the market rates and key policy rates. for instance, the czech national bank introduced a new liquidity providing repo operation despite the fact that the money market as a whole operates with huge surplus and on average the czech national bank has to withdraw roughly 400 billions czech crowns from the money market to be able to control the market interest rates. while introduction of this new operation made the money market participants less nervous, unusual spread between the market rates and the key policy rate still persists. this is not only the case of the czech economy or other central european economies but we observe the same also in the eurozone. commercial banks operating in the eurozone are willing to borrow around 250 billions euro from the european central bank paying the key policy