REDFIELD & WILTON STRATEGIES – Written Evidence (CDC0016)

 

CENTRAL BANK DIGITAL CURRENCIES INQUIRY

 

 

About Redfield & Wilton Strategies:

Redfield & Wilton Strategies Ltd seeks to submit evidence to the House of Lords Economics Affairs committee in connection with the Committee’s inquiry on Central Bank Digital Currencies (CBDCs). Redfield & Wilton Strategies is a strategic polling organisation founded in January 2020. We are an accredited member of the British Polling Council and the American Association of Public Opinion Research and abide by both organisations’ rules.

 

Since our founding, we have developed unique expertise in the area of cryptocurrency with respect to public opinion through extensive, in-depth polling and have established ourselves at the forefront of understanding public sentiment regarding digital currencies—including different approaches to their regulation, their introduction as legal tender, and their impact on consumers and financial markets.

 

For over a year, we have been tracking public views on cryptocurrencies in the UK, enriched by recent targeted polling on the introduction of a CBDC in particular. Additionally, in the last few months, we have polled more than 10,000 people in the US and 31,000 people in the European Union on the regulation and use of cryptocurrencies, giving us unique additional insights from a global perspective.

 

Having measured public sentiment on cryptocurrencies more than any other research company, we are now presenting this written evidence to inform the Committee’s understanding of the main issues confronting HM Treasury and the Bank of England from a public opinion perspective as they explore the potential of introducing a CBDC in the UK. We thereby hope to contribute to the development of the policy option that best responds to the interests and needs of HM Treasury, the Bank of England, the financial sector, and individual consumers in the UK.

 

The evidence presented below is based on fieldwork conducted on 7 October 2021 and on 12 October 2021. To maximise representativeness, two samples of 1,500 eligible voters in Great Britain were weighted to the profile of adults (18+) in Great Britain by age, gender, region, education, and 2019 General Election vote. All percentages cited as evidence in this report relate to this polling research. The polls were self-funded internally by Redfield & Wilton Strategies Ltd for the purpose of this submission. Data tables are available to the Committee upon request.

 

Recommendations and Summary of Key Findings:

 

We strongly argue that any potential UK Central Bank Digital Currency will need substantial support and ‘buy-in’ from the British public to succeed. At this moment, however, such support—and even awareness—currently does not exist.

Before proceeding further on CBDCs, we recommend that HM Treasury and the Bank of England remain open to exploring additional opportunities beyond the introduction of a CBDC. Given low levels of broad public support, focusing on a CBDC alone would likely be a strategic error. The scope of the present inquiry should therefore be widened to also include explorations of additional options that promote innovation around digital finance.

The main points that lead us to recommend this course of action are as follows:

While awareness of cryptocurrencies in the UK is growing, only 27% of Britons polled say they would support the introduction of a UK CBDC and an equal proportion would oppose it. 29% say they would neither support nor oppose it, and 17% don’t know. Further, only 22% currently say it is likely they would own and use a UK CBDC, compared to 51% who say it is unlikely that they will.

Currently, Britons appear largely satisfied with their banks. If a CBDC were to be introduced, HM Treasury and the Bank of England would be challenged with having to explain how and why a CBDC would improve the UK’s financial landscape both at a systemic and individual level, when the current framework is working well for many.

At the same time, a large proportion of Britons significantly overestimates their own understanding of the British financial and banking system as it functions today. Introducing the added difficulty of also having to understand CBDCs or cryptocurrencies in general and thereby bringing greater scrutiny to the banking system runs the grave risk of reducing the high level of trust placed in the current system.

The Bank of England and HM Treasury would also need to play a more consumer-oriented role to both ensure the public understands how to use CBDCs and, crucially, is persuaded to use them. Merely educating the public on CBDCs will not necessarily achieve greater support and use—education does not necessarily imply persuasion.

The potential benefits of a CBDC are moreover ambiguous and uncertain to Britons. Public concerns over users’ privacy in particular will be among the biggest obstacles to ensuring widespread acceptance of a CBDC in the UK.

In addition, current support for the introduction of a CBDC is no greater than support for alternatives such as making independent cryptocurrencies pegged to the British Pound legal tender in the UK. Indeed, 26% would support the Government pursuing this alternative, instead of issuing a CBDC. Again, 22% would be likely to own and use an independent cryptocurrency pegged to the British Pound—the exact same proportion as that of Britons who would be likely to own and use a CBDC.

These results beg the question of why the latter option—or indeed, any other option—is not also being explored by the Bank of England and HM Treasury, when they may be just as popular. In fact, the alternative of introducing legislation that would provide a legal framework for cryptocurrency usage in the UK, for instance, appears likely to achieve much greater public support than a CBDC. To this point, a plurality (38%) disagrees that, were a CBDC to be introduced, it should be the only cryptocurrency accepted as legal tender in the United Kingdom. We therefore recommend that the Bank of England and HM Treasury also take the options of supporting other (non CBDC) stablecoins—both those pegged to the British Pound and those pegged to other fiat currencies such as Dollars—into account.

Finally, the public is generally sceptical about the competence of the Government when it comes to developing proprietary software. 53% disagree that the Government is capable of and can be trusted to develop new apps and other tech products quickly and effectively. Between the Government and the private sector, only 7% say they trust the Government more to be a source of innovation, while 53% say they trust the private sector more in this respect.

Detailed Evidence in Response to the Committee’s Questions:

  1. What are the main issues driving central banks to explore CBDCs?

 

1.1 From a public opinion perspective, Britons view central banks’ motivation for creating CBDCs to be largely rooted in self-interest. As such, 36% of Britons think the Bank of England’s main reason to issue a CBDC would be to protect its status as the sole creator of money in the UK.

 

1.2 The public also view increased surveillance powers and control over both citizens and banks as another reason the Bank of England is looking into introducing a CBDC. 32% think the Bank of England would issue a CBDC to monitor how Britons use their money, 25% think it would do so to exert greater control over banks in the UK, and 23% think it would do so to limit what British citizens can do with their money. A further 27% also think the Bank of England would issue a CBDC to prevent money laundering and tax evasion or avoidance, likely by tighter transaction monitoring.

 

1.3 The public less frequently sees more positive reasons, such as pursuing a global leadership position in cryptocurrency (21%), encouraging innovation (19%), and making money more accessible to British citizens (12%) as significant drivers for the Bank of England in exploring a CBDC.

 

1.4 These assessments come amidst growing awareness of cryptocurrencies in the UK—another driver of a potential CBDC. 40% of Britons polled say they have heard a ‘moderate amount’ or ‘a lot’ about cryptocurrencies, while a further 53% say they have at least heard ‘a little bit.’ Only 8% of respondents say they were hearing about cryptocurrencies for the first time. A significant minority of 12% say they have at some point used cryptocurrencies to pay for goods or services, though this figure is difficult to verify.

 

1.5 Altogether, these figures show that the public would be sceptical of the UK Government’s motivations for pursuing the introduction of a CBDC.

 

  1. What are the main benefits and risks of a CBDC?

 

2.1 To the public, the potential benefits of a CBDC are ambiguous and uncertain. When respondents to our poll are informed that the UK Government is exploring creating a Central Bank Digital Currency, which would be issued by the Bank of England, pegged to the value of the British Pound, and usable for daily transactions, 27% say they would support and an equal 27% say they would oppose the introduction of such a CBDC. 29% would neither support nor oppose it, and 17% are unsure. These figures mark no significant change compared to our publicly released August 2021 poll, when 26% supported and 27% opposed the introduction of a CBDC in the UK.

 

2.2 In terms of potential use, 57% of respondents say they don’t know for what purpose they would use a CBDC. However, the most common purposes for which Britons say they may use a CBDC include paying utility bills (19%), paying for daily transactions (15%), investing in other financial products (15%), and paying taxes (15%).

 

2.3 In terms of risks, Britons perceive cyberattacks and hacks (56%) to be the main risk of the Bank of England introducing a CBDC in the UK, followed by invasions of their privacy (34%) and the ability of Government to seize their money (32%). 24% further perceive a lack of widespread adoption as a risk, 20% the excessive use of electricity, and 9% see the potential of a CBDC to stymy innovation as one of the main risks.

 

2.4 Concerns over a lack of widespread adoption are closely linked to the challenge of ensuring interoperability of a CBDC not only with other payment systems but crucially with other blockchains. Along with consumer trust, widespread interoperability is a key factor on which the success or failure of a CBDC hinges. To be seen as an appealing proposition by end users, a CBDC would have to be usable beyond its own ecosystem. Ensuring such a form of interoperability across multiple channels and currencies will be crucial to incentivising mass adoption among the public.

 

2.5 Britons also largely associate cryptocurrencies with Bitcoin, which has been highly volatile in its price. The creation of a CBDC, especially when it is informally labelled ‘Britcoin,’ therefore runs the risk of a cool reception among the broader public, due to its cognitive association with unstable cryptocurrencies.

 

2.6 Finally, Britons currently place a high level of trust in a financial system that they think they understand but do not actually understand. While 41% say they ‘mostly understand’ how the financial system in the United Kingdom works and 11% say they ‘fully understand, 57% erroneously believe that the value of the British Pound is currently backed by gold, in addition to 20% who think it is backed by silver, 14% who think it is backed by the US Dollar, and 7% who think it is backed by something else. A significant 29% admit they don’t know. Only 7% say the Pound is backed by nothing, the correct response. As such, the introduction of a CBDC, with its inherent complexity, risks drawing attention to this widespread misunderstanding and could thereby reduce trust in the current financial system.

 

Could the proposed benefits of a CBDC be achieved through improvements to existing payment systems?

 

3.1 Currently, Britons appear largely satisfied with their banks. Trust in high street banks is significant, with 86% of respondents having ‘a lot’ or ‘a moderate amount of trust’ in these institutions. 11% have ‘a little bit of trust, and only 3% have no trust at all. Further, 97% of Britons polled feel safe having their money stored in a bank account, and 92% find it easy to use their bank account(s) and its services, including 59% who find it very easy.

 

3.2 Among those who have a bank account with a high street bank, 77% say their experience has been positive, and only 4% say their experience has been negative. Among users of the newer digital banks, an overwhelming 91% say their experience has been positive, and only 2% describe their experience as negative. Further, 83% of bank account holders have never had an issue accessing the money in their bank account, compared to 17% who have. Similarly, 77% have never had trouble making or authorising a payment online, although a non-negligible 23% say they have previously had trouble doing so.

 

3.3 If a CBDC were to be introduced, HM Treasury and the Bank of England would be challenged with having to explain how and why a CBDC would improve the UK’s financial landscape both broadly at a systemic level and specifically at an individual level, when the current framework appears to work well for so many Britons.

  1. How should the Bank of England and HM Treasury address concerns over privacy and traceability of payments when exploring CBDC design?

 

4.1 Public concerns over users’ privacy will be among the biggest obstacles to wide public acceptance of a CBDC in the UK. Thinking about the introduction of a CBDC, 68% of Britons polled say they would be concerned about users’ privacy (against 8% who say they would be unconcerned). A further 57% say they would be concerned about Government being able to seize their money (against 12% who say they would not be concerned about this prospect). This threat to their privacy relates not only to the Government, but also to ‘malicious actors,’ with 73% saying they would be concerned about the threat of hacks and cyberattacks if a CBDC were to be introduced, against 5% who say they would be unconcerned about this threat.

 

4.2 Moreover, among respondents who would be more likely to own and use independent digital currencies pegged to the British Pound than to own and use a CBDC created by the Bank of England, 31%—a plurality—cite better privacy protection as the main reason for this preference. These results therefore point to a public preference for a system which better protects their personal privacy.


  1. What effects might a CBDC have on the financial sector?

 

5.1 The public is generally sceptical of the UK Government’s capacity to be a source of innovation and to produce proprietary software. 53% disagree that the Government is capable of and can be trusted to develop new apps and other tech products quickly and effectively. Between the Government and the private sector, only 7% say they trust the Government more to be a source of innovation, while 53% say they trust the private sector more in this respect.

 

5.2 The public’s recent experience with ‘Track & Trace, something we have tracked over time in our polling, is one contributing factor to this level of distrust. 56% say they think the Government did a bad job when it came to implementing this application.

 

5.3 In light of this scepticism, it is strategically important that alternatives to a CBDC from the private sector, including those that are already in use, are also given the opportunity to be developed further. Among others, such alternatives include facilitating the operation and use of privately issued stablecoins—both those pegged to the British Pound and those pegged to other fiat currencies—in the UK.

 

5.4 To this point, when asked if they believe that if the UK Government were to introduce a pegged CBDC, it should be the only cryptocurrency accepted as legal tender in the UK, a plurality of respondents (38%) disagree, compared to just a quarter (25%) who agree with this statement. Indeed, 43% would support the Government making it easier for consumers to use independent cryptocurrencies in the UK.

 

5.5 Furthermore, 41% of respondents would support enabling cryptocurrencies pegged to the British Pound, but not created by the Bank of England, to operate in the UK with the goal of strengthening the UK’s position in the global financial sector. Just 19% would oppose this measure with this stated goal, suggesting the public are keen for innovations that strengthen the UK’s financial sector and global reputation to be introduced.

 

5.6 These results point to the public’s potential appetite, given some substantial education, for engagement with a greater variety of cryptocurrencies, as opposed to just a CBDC.

 

  1. What effect might a CBDC have on competition and innovation in the payments and fintech sectors?

 

6.1 Leading on from the above, 38% of Britons polled express concern about the introduction of a CBDC in the UK potentially leading to less innovation by independent companies.

 

6.2 When asked to choose whether they think a CBDC issued by the Bank of England or independent digital currencies pegged to the British Pound would perform better in terms of encouraging innovation, public opinion is split, with 26% of respondents thinking a CBDC would perform better and an equal 26% thinking independent pegged cryptocurrencies would perform better.

 

  1. How might a CBDC affect monetary policy?

 

7.1 From the point of view of public opinion, the introduction of a CBDC would reinforce the supremacy of the Bank of England and its control over monetary policy.

 

7.2 Less tangible but all the more important, however, is the prospect of changes in how the British public perceives and understands the concept of ‘money,’ which we mention in questions 2 and 8.

 

  1. How might a CBDC change the Bank of England’s role and responsibilities?

 

8.1 As stated previously, the most common purposes for which Britons say they may use a CBDC include paying utility bills (19%), paying for daily transactions (15%), investing in other financial products (15%), and paying taxes (15%)—though a significant 57% say they don’t know how they would use a CBDC.

 

8.2 Such potential uses of a CBDC would significantly increase the role and responsibilities of the Bank of England, from managing transactions between banks to also managing retail transactions between individual Britons and businesses.

 

8.3 At the moment, the public is lukewarm about the prospect of this widening of the Bank of England’s oversight. 23% say they would support this change, while 25% say they would oppose it. Significantly, 51% think this change would be ‘costly’ while just 7% predict it would be ‘cheap.’ Equal proportions consider it likely (27%) and unlikely (28%) that the Bank of England would be able to provide high quality customer service to individual users of a CBDC.

 

8.4 In addition to having to explain the potential advantages of a CBDC to a sceptical public, the Bank of England and HM Treasury would also need to play a more educational role to ensure proper public understanding if they were to introduce a CBDC. After all, a lack of knowledge about cryptocurrency (70%) is cited as the main reason given by respondents for not currently owning any cryptocurrency.

 

8.5 Currently, two-thirds (66%) of Britons say they had not heard anything about CBDCs before taking our poll. More fundamentally still, even though 37% of Britons polled say they ‘somewhat understand,’ 41% say they ‘mostly understand,’ and 11% say they ‘fully understand’ how the financial system in the UK works, 57% erroneously believe the British Pound is currently backed by gold, and a further 20% believe it is backed by silver. Only 7% correctly identify that, as a flat currency, the value of the British Pound is not backed by another asset.

 

8.6 These figures suggest that a large proportion of Britons significantly overestimates their own understanding of the British financial and banking system as it functions today. Introducing the added difficulty of also having to understand CBDCs or cryptocurrencies in general and thereby bringing greater scrutiny to the banking system runs the grave risk of reducing the high level of trust placed in the current (largely misunderstood) system.

 

8.7 Awareness of cryptocurrencies in general is higher than awareness of CBDCs, with 53% of Britons polled saying they have heard ‘a little bit,’ 31% having heard ‘a moderate amount,’ and 9% having heard ‘a lot’ about cryptocurrencies. But perceived understanding remains low: nearly half (48%) of respondents say they do not at all understand how cryptocurrencies work, for instance. A further 30% say they ‘somewhat understand,’ 17% say they ‘mostly understand,’ and only 5% say they ‘fully understand.’

 

  1. How should HM Treasury and the Bank of England engage with the public on the research and development of a CBDC?

 

9.1 Whether a CBDC introduced by the UK Government is successful or not is predicated, substantially, on a requisite level of buy-in and confidence from the public. To provide value and, in the unique circumstance of cryptocurrency, to be functionally secure, a CBDC requires a public that believes in and trusts it.

 

9.2 Currently, public demand for a CBDC is minimal. Only 27% of Britons polled would support the introduction of a CBDC, while an equal proportion (27%) would oppose it. 29% would neither support nor oppose it, and 17% don’t know. Crucially, only 22% currently say it is likely they would own and use a Central Bank Digital Currency, compared to 51% who say it is unlikely that they will. We thus do not find widespread support for the introduction of a CBDC in the UK.

 

9.3 HM Treasury and the Bank of England should remain open to exploring additional opportunities beyond the introduction of a CBDC. Given the current low levels of broad public support and confidence in a CBDC, focusing on a CBDC alone would likely be a strategic error and leave the UK failing behind other countries who have begun to develop an open legal and regulatory framework for cryptocurrencies.

 

9.4 For instance, public support for making independent cryptocurrencies pegged to the British Pound legal tender in the UK is nearly identical, as 26% would support the Government pursing this alternative, instead of issuing a CBDC. Again, 22% would be likely to own and use an independent cryptocurrency pegged to the British Pound—the exact same proportion as that of Britons who would be likely to own and use a CBDC. Further, 49% of Britons would support (compared to 11% who would oppose) the Government introducing legislation that would provide a legal framework for cryptocurrency, demonstrating that this is another option that may be more widely supported by the public and should be pursued.

 

9.5 Going forward, HM Treasury and the Bank of England would also benefit from continued and in-depth public opinion polling on the introduction of a CBDC and potential alternatives to better understand the public’s thoughts, needs, and concerns. Taking Britons’ views on these matters seriously will be crucial for ensuring that any decision made by HM Treasury and the Bank of England adds real value to the UK’s financial landscape from the point of view of consumers.

 

  1. How might CBDCs affect the economic foreign policies or geopolitical influence of different countries and economic areas? Are there implications for the effectiveness of economic sanctions?

 

10.1 At this moment, only 6% of the public see to be able to levy financial sanctions on other countries as a potential main driver behind the Bank of England’s interest in issuing a Central Bank Digital Currency, compared to several other reasons outlined in question 1.

 

15 October 2021