Central bank digital currencies are a long way from becoming reality — unless you’re in China

Don’t expect central banks to issue their own digital currencies anytime soon — that was the message from the Bank of England this week.

The U.K. central bank on Tuesday said it was advancing its exploration of central bank digital currencies, or CBDCs, to a consultation stage that’s due to take place next year.

But even if it decides to push ahead with the proposed digital currency, which has been dubbed “Britcoin,” it’s unlikely to arrive until at least 2025, the BOE said. And even then, that’s only if it’s found to be “operationally and technologically robust.”

Anne Boden, CEO of London-based digital bank Starling, said a key question that’s still not been answered is which problem Britcoin is trying to solve. Boden is one of several industry executives providing input to U.K. officials as they explore CBDCs.

“Everything we do in this space has to solve a real problem,” Boden told CNBC last week. “It has to have uptake and needs to be ubiquitous enough in order to provide some real value.”

Rising interest in bitcoin and other cryptocurrencies has reignited central banks’ ambitions to develop their own digital currencies lately.

But so far, most CBDC projects are moving at a sluggish pace. Sweden, which was early to the CBDC game, says it hopes to have a digital version of its krona by 2026.

In China, on the other hand, the central bank is racing ahead with its own CBDC project, rolling out a virtual version of the yuan in trials across several provinces. Experts say the People’s Bank of China is likely to be the first to fully launch a CBDC.

But the PBOC’s digital yuan comes with a number of problems that make it less attractive in Western countries. Critics say it’s too centralized and could be used to boost government surveillance. That’s because, unlike cash, people’s digital transactions can be tracked online.

Garrick Hileman, head of research at crypto company Blockchain.com and visiting fellow at the London School of Economics, said talk of central bank-issued digital currencies mimics the hype around blockchain in late 2017, when bitcoin’s price experienced a seismic rally before plunging sharply.

Several major banks had talked up the huge potential for blockchain, the distributed ledger technology behind cryptocurrencies. But they snubbed the idea of bitcoin and other digital coins becoming a mainstream financial phenomenon.

“I think CBDCs right now are running the risk of being massively overhyped and under-delivering,” Hileman said.

“The questions that need to be discussed to design an effective CBDC — like privacy, like surveillance — are things that are way above the paygrade of every central banker.”

There are plenty of issues to be ironed out in the development of CBDCs — not least when it comes to ensuring privacy and avoiding financial censorship.

Bankers also worry CBDCs could undermine their role in the financial system, resulting in the increased risk of a “bank run.” Consumers may flock to place their deposits with central banks directly, rather than keeping their money at the bank.

“Even if you think you’ve got the perfect mouse trap to head off a run from HSBC and Natwest into the Bank of England’s perceived safety, until that’s battle tested we just don’t know,” Hileman said.

Nevertheless, whichever form “Britcoin” and other CBDCs inevitably take, there’s no doubt about the move from analog to digital.

“We’ve been talking about CBDCs for years now,” said Hileman. “This is now firmly on the radar for central banks.”

Boden said she hopes the Bank of England doesn’t wait too long to evaluate the potential for a U.K. CBDC.

“The world is moving on,” she said. “The U.K. has been at the forefront of lots of new payment systems in the past.”

“If something new is going to happen in the space, I very much hope the Bank of England’s there thinking about it soon, rather than later.”