HM Treasury and the Bank of England have announced a new consultation on the possibility of a digital pound. According to a joint statement, The consultation is being launched as the UK government wants to ensure the public has access to “safe money” while supporting private sector innovation and efficiency. The UK is one of many jurisdictions that is reviewing the possibility of issuing a central bank digital currency or CBDC. A decision regarding a digital pound will not take place until “the middle of the decade.”
A Technology Working Paper has been published alongside the consultation.
Jeremy Hunt, Chancellor of the Exchequer, said that while cash is here to stay, a digital pound backed by the Bank of England could be a new way to pay in a trusted way.
Governor of the Bank of England, Andrew Bailey, said the case for a digital pound continues to grow.
“However, there are a number of implications which our technical work will need to carefully consider. This consultation and the further work the Bank will now do will be the foundation for what would be a profound decision for the country on the way we use money.”
The concept is for a digital pound to replicate the role of cash in society. A digital pound would be held in a digital wallet and subject to rigorous standards of privacy and protection.
In a speech by Sir Jon Cunliffe, Deputy Governor of the Bank of England, he struck a positive tone about the potential of a digital pound.
Sir Jon stated:
“Our assessment is that on current trends it is likely that a retail, general purpose digital central bank currency – a digital pound – will be needed in the UK. This would be a new, digital form of money, issued by the Bank of England for use by households and businesses for everyday payments.
A digital pound would be a very substantial financial infrastructure project that would take several years to complete. It would, as many in this audience know, have major implications for the way we transact with each other and, more broadly, for the financial sector and the economy in general. The Taskforce’s conclusion is that we are not yet at a point where a firm decision can be made to implement a digital pound.”
He predicted the continued decline of physical cash while stating the safest form of money is issued by the state. He added:
“… if designed appropriately, a digital pound could complement and support new forms of private digital money and payment services, for example by acting as the ‘bridging asset’ between different platforms enabling convertibility. By establishing technical standards available to all, it could help ensure interoperability between different platforms. Our assessment is that a digital pound, an alternative, publicly issued form of digital money, available to all, would help ensure competition and innovation and drive efficiency in payments.”
The intent is to hold a digital pound to the same level of privacy, or higher, as bank accounts or debit cards.
“Neither the Government nor the Bank would program a digital pound or restrict how it was spent. Instead, the Bank would provide the infrastructure and minimum functionality for the private sector to provide programmability features for users. Those features would require user consent.”
No decision has been made as to if a digital pound would utilize distributed ledger technology (DLT) or blockchain.
The UK government outlined “how a digital pound might work.” It bulleted out its initial thoughts as follows:
- The Bank would provide “the central public infrastructure in the form of a core ledger.”
- A digital pound would be subject to rigorous standards of privacy and data protection. Like current digital payments and bank accounts, the digital pound would not be anonymous because the ability to identify and verify users is necessary to prevent financial crime.
- Digital wallets could allow people to manage their balances and make payments in the same way as current contactless payments.
- During an introductory phase, there would be a limit on an individual’s holdings — perhaps between £10,000 and £20,000 per individual.
CI received some feedback on the digital pound announcement from several industry insiders.
Ian Taylor, Board Advisor at CryptoUK – a UK trade association representing the digital asset and Web3 sector, stated:
“We welcome today’s news that the Bank of England and His Majesty’s Treasury has announced a roadmap to a digital pound. This will bring the UK in line with the European Central Bank and a growing number of forward-thinking nations including many G7 countries, which are exploring the benefits of this payment instrument. We look forward to discussing the positive impact a UK central bank digital currency (CBDC) could have on financial inclusion, stability and operational efficiency in an increasingly cashless society with policymakers and regulators. We will also look for opportunities to collaborate with other associations here in the UK and globally, and connect with other jurisdictions in the process of developing and implementing their own CBDC solutions.”
R3 Head of Government Affairs EMEA Chris Ford said the UK government’s plan to investigate a digital pound is a significant moment for the UK’s “cutting edge Fintech sector” that demonstrates the UK government’s intent of putting technology at the center of financial services.
“Regulated CBDC, built on distributed ledger technology, can enhance efficiency across our financial market infrastructure and solve real problems that have held us back for decades. Following last week’s proposals to regulate crypto assets, it is clear that the government sees DLT as a core pillar through which it can drive financial innovation. Amidst rising competition from Europe and elsewhere, the application of blockchain and related technologies will be key in ensuring the UK retains its status as a global hub for financial services.”
William Je, founder of Himalaya Exchange, said the UK government’s announcement is the first step for the UK to evolve into a prosperous and secure crypto hub on the global stage.
“The latest announcement from the UK government comes at the ideal time as confidence is low and confusion is high. The first steps of the UK developing into a global crypto hub have been taken as robust regulation looks to spell trust and opportunity for the future of the industry.”
The consultation is open for comments until 7 June 2023.
The consultation is available below or may be downloaded here.