Jon Cunliffe: Do we need "public money"?

Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at the OMFIF Digital Money Institute, London, 13 May 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I want to talk today about whether we need 'public money'. I should make clear that I am not talking here about public spending but rather about the form of money itself: by 'public money' I mean money issued by the state to its citizens for everyday use.

Money in the UK today

This may seem a rather odd question.

In the UK, the Bank of England – a public institution – has been issuing money to the public for over 300 years. Its banknotes, carrying the famous "I promise to pay the bearer" pledge are carried in millions of wallets and purses and used millions of times every day by the public to make transactions.

These notes and coins are denominated in Pounds Sterling, the currency of the UK. It is the Bank of England, on behalf of the state, that is charged with ensuring the stable value of the currency by keeping inflation at its 2% target.

Public money for general use in the UK is only available in the form of physical cash. It is highly visible, trusted and, indeed, is probably the image that many people in this country have in their mind when they picture money.

However, the majority of the money held and used by people in the UK today is not physical 'public money', issued by the state, but digital private money' issued by commercial banks. Around 95% of the funds people hold that can be used to make payments are now held as bank deposits rather than cash. In everyday use, only 23% of payments pre pandemic were made using public money in the form of cash, down from close to 60% a decade earlier.

This private money is not a claim on the state or backed with the resources of the state. It is not covered by that familiar Bank of England promise to 'pay the bearer'.