The Bank of England today launched a consultation into the application of central bank digital currencies (CBDCs). The paper says a digital pound is “likely to be needed in the future, to ensure the public have access to safe money that is convenient to use as our everyday lives become more digital, while supporting private sector innovation, choice and efficiency in digital payments”.

Positive projections show a digital pound could be a reality by the end of the decade. But a decision may not be made on this until 2025.

Chancellor of the Exchequer Jeremy Hunt stressed that cash would remain an option.

“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,” said Andrew Bailey, governor of the Bank of England.

What would a digital pound look like?

• It would replicate the role of cash in a digital world, so that it is risk-free, highly trusted and accessible.
• £10 in digital pounds would always be worth the same as £10 in cash.
• Issued by the Bank of England, digital pounds would be widely available and convenient to use.
• The currency would be subject to rigorous standards of privacy and data protection – neither Government nor the Bank would have access to personal data and holders would have the same level of privacy as a bank account.
• Digital pounds would be accessed through digital wallets offered to consumers by the private sector through smartphones or smartcards.
• The currency would be intended for payments, online, in-store, and to friends and family, rather than savings, with no interest paid on holdings.
• Initial restrictions would be imposed on how much an individual or businesses could hold.

As it would be backed by a central authority, a CBDC would not be subject to the same fluctuations and volatility as cryptocurrencies.

Experts believe the impact of the implementation of a digital pound would go far beyond simply facilitating payments and transactions.

“[With a digital pound] tax avoidance becomes harder, welfare payments become more straightforward, and governments can control what those welfare payments are used for. Criminal activity will also be reduced or moved elsewhere.” 

Lucas Kiely, CIO, Yield app

“If all payments are made on-chain and governments can track stable digital currency then it solves a number of issues,” says Lucas Kiely, CIO, Yield app. “Tax avoidance becomes harder, welfare payments become more straightforward, and governments can control what those welfare payments are used for. Criminal activity will also be reduced or moved elsewhere. We will have faster payment systems, and more transparent and accessible credit histories to work from.”

A digital dollar and euro are also being discussed. Despite being a leader, the UK does face challenges. Recent research from the Global Open Finance Index found that while the UK pioneered open banking, it would need to maintain effective regulation and make use of data-led insights to remain a leader.