Based on the Bank of England governor Andrew Bailey's  comments, there will soon be a decision whether to create a central bank digital currency (CBDC) for the UK.

A state-issued digital pound has multiple potential effects on the UK economy.

First, between 2006 and 2018, cash usage decreased from 63% to 28%, while debit card payments increased from approximately 12% to 39% within the same period.

Based on this data, the use of privately issued money is continuously increasing. While this sparks innovation, it also comes with risks for the BoE.

As a complement to physical banknotes, the Bank of England could reduce the share of privately issued money and regain its control over this area by creating a central bank digital currency.

In addition to stability via the creation of a more diverse and resilient payments landscape, a CBDC could be used to build a more efficient cross-border payments system, which will substitute the current network that even the Bank of England describes as "expensive, slow, and opaque."

An efficient cross-border payments system will become even more crucial for the UK after the Brexit transition period ends on January 1, 2021, which is expected to change the nation's payments landscape.

The reason why the UK is deciding on the matter now is simple: other countries are way ahead in developing their CBDCs.

According to a recent survey, 46 countries are already working on or considering the development of a CBDC.

China is in the leading position in this area. The People's Bank of China has already initiated tests in four cities for the digital yuan in April, with draft laws ready to support the CBDCs issuance.

Sweden has also been running pilots for its e-krona CBDC since February 2020, expected to end the testing phase in February 2021.

Furthermore, the Bank of Japan announced proof-of-concept pilots for the digital yen earlier this month while the European Union confirmed that the European Central Bank is working on both a retail and wholesale version of a digital euro.

Like the United Kingdom, the United States is still in the decision phase, initiating multiple discussions on the matter this year.

It makes sense for central banks to focus more on the development of CBDCs as the COVID-19 pandemic has fueled an increased demand for cashless payment methods, such as smartphone, contactless credit card, and digital currency payments.

With digital payments on the rise, it becomes even more important for nations to create their state-issued digital currencies that further intensifies the global race between central banks.

As other countries, such as China and Sweden, are already ahead in the race, it is crucial for the United Kingdom to not only decide on the matter but to start developing its CBDC as quickly as possible.