Digital currency: what are the opportunities for banks?

31 March, 2023Joshua Downes

With big tech firms moving into the payments space, there have been concerns over the potential fragmentation of the financial system and a central bank digital currency (CBDC) has been hailed as a possible solution.

Introducing a CBDC for the UK would undoubtedly bring about widespread changes. But if digital currencies become mainstream, what challenges and opportunities would they present for banks?

Commercial opportunities for banks

There has been speculation that, if a CBDC is introduced in the UK, banks could face a degree of disintermediation. This is despite the fact that the Bank of England will limit the amount of CBDC that can be held – at least initially – and digital wallets would not pay interest.


However, speaking at MoneyLive in London, Nicole Sandler, Head of Digital Policy at Barclays, said banks need to be looking at the opportunities that CBDCs present. “What would happen if we were to lose 20% of our deposits?” she said. “What other opportunities are there for us and for others to bring out the best for our customers?”

Speaking at the same event, Akash Jain, Chief Operating Officer, Digital Assets and Currencies Transformation at Deutsche Bank, responded by outlining the three main commercial opportunities he sees for banks.

“The first and the biggest one in my opinion is around financial resource management,” he said, pointing out that the efficiencies digital currencies could bring would free up resources elsewhere.

“The second one,” he continued, “is using programmability as a concept and what new innovative products could be offered. For example, could we disburse interest payments automatically using smart contracts? That is something that could be possible with digital currencies.”

“The third area is around payments as a whole,” added Jain. “It takes roughly two to five days for a cross-border payment to happen today. There are significant transaction costs that go into these payments. And digital currencies can potentially allow you to do them much faster and at much lower cost.”

Digital currency: what are the challenges for banks?

Of course, preparing for a digital currency would require changes for banks and such changes would bring new challenges for those wanting to avoid falling behind.

“The policymakers have been very clear. They’re going to offer the core ledger. It’s going to be a public/private partnership, and then it’s for the private sector – banks and non-banks – to offer user-friendly service,” said Sandler.  “We need to work out what those user-friendly services are and how we offer them – because if we’re not offering them, there will be others in the industry who will be.”

Addressing the issue of potential fragmentation of the financial system, Sandler went on to say “that’s one of the biggest challenges I see. You want to make sure that commercial bank money, CBDCs and stablecoins are on an even footing. Because if they’re not, you’re going to have fragmentation across the payments system – and that would be a real challenge.”

What should banks be doing to prepare for CBDCs?

The Bank of England said the UK would likely need a CBDC and it could be ready to go by 2030. As such, banks will need to think about making preparations for going digital.

“For banks, we have to assume that at the end of the two-to-three-year design phase, there will be a CBDC – whether its five years/six years down the line. So, what will our role be?” said Sandler.

“One thing we have to do is work really closely with our policy makers because both of us are educating each other on what this future landscape may look like. It’s very important that we have a strategy at the bank, that we’re pulling in the right people across the organisation. Also externally, because none of these things will be built purely on our own. It’s very much the collaboration side that we need to make sure is firmly embedded.”

“We have to work out how we as an industry – both the public and private sector – will be making this best work for our customers.”

Related content


Read more about our digital banking qualifications