“Will Central Bank Digital Currencies (CBDC’s) Eliminate the Need for Cryptocurrencies?”

Abstract

As of February 2021 there were 4,501 crypto coins on the market (Best 2021). In response to the explosion of blockchain development, The Bank of England are considering the introduction of a Central Bank Digital Currency (CBDC) (Bank of England 2021a). This would give the central bank the ability to build on their traditional centralised role in the economy, ensuring stability by providing certainty and liquidity in the financial system, as the UK’s monetary and fiscal policy manager. This paper is sectioned into three parts addressing the question: Will a CBDC eliminate the need for cryptocurrency? The historical and contemporary role of the Bank of England is considered, crypto coins and CBDC are assessed against their competencies, and finally a comparison between the capability of crypto coins and a CBDC, comprises of an evaluation to whether either can meet the Bank of England’s policy objectives. This paper finds that, if crypto assets become progressively governed by regulation through incorporation into existing and developing legal frameworks (Ferreira 2021; Agnikhotram and Kouroutakis 2018; Bank of England 2021a; Department of Treasury 2021), far from being exclusive assets, both a CBDC and crypto-assets present a range of potential opportunities to contribute to a host of financial instruments, that can operate in an interoperable, inclusive FinTech sector. This will result in supporting an open, competitive, and free market, ultimately benefitting end users in an increasingly globalised financial system.