The Bank of England and the British government have officially launched a consultation on the digital version of the pound sterling. This follows a growing trend among central banks worldwide to embrace digital currencies, as the world continues to move towards a cashless future. The Bank of England and the Treasury aim to draw up a roadmap for the eventual establishment of a central bank digital currency (CBDC) and have given a tentative launch date of later in the current decade.
The Consultation Process
The consultations will last for approximately four months and include a design phase that will run until 2025 at the earliest. This will give the Bank of England and the Treasury time to consider the implications of launching a digital pound and to make a final decision on whether to proceed with the project. If they decide to go ahead, a significant investment will be required, which could come later in the second half of the decade as 2030 approaches.
The Benefits of a Digital Pound
The Bank of England and the Treasury agree that a CBDC could have utility in the future, particularly as habits regarding the use of cash and credit cards change and individuals and businesses increasingly adopt cryptocurrencies and stablecoins. A digital pound would offer a new way to pay, boost confidence in the currency and help maintain financial stability. Governor of the Bank of England, Andrew Bailey, noted that the case for developing a digital pound continues to grow as the world moves towards a virtual payments system.
How the Digital Pound will Work
The Treasury has emphasized that the digital pound will not be a cryptocurrency but rather a central bank digital currency issued and owned by the Bank of England. Intermediaries such as retail banks will be involved to facilitate transactions, and the bank is likely to restrict the amount that an individual or business can hold.
Support for the Digital Pound
The digital pound has broad support from officials in the UK, with Prime Minister Rishi Sunak and Finance Minister Andrew Griffith warning against slowing down the creation of the CBDC. Chancellor Jeremy Hunt has also expressed his support, stating that a digital pound issued and backed by the Bank of England could be a reliable, accessible and easy-to-use new payment method. The Bank of England’s Deputy Governor for Financial Stability, Jon Cunliffe, has also spoken out in favor of CBDCs, saying that they offer the opportunity to solve problems in international payments.
The Digital Pound Foundation
In October 2021, the Digital Pound Foundation was established as an independent forum to support the implementation of the digital pound and a suitably structured digital currency ecosystem. Founding members include projects such as Avalanche, Quant and Ripple, and the foundation aims to establish an ecosystem that encompasses both CBDCs and privately-issued forms of digital currency.
Regulation of Crypto-Assets
At the beginning of February, the Treasury announced that it was preparing to present ambitious plans to regulate activities related to crypto-assets, bringing them in line with traditional finance. However, the plans to apply stock-like standards for cryptocurrency-related promotions have been temporarily put on hold. The UK’s National Crime Agency has also started recruiting a group of police officers to investigate cryptocurrency-related crimes, highlighting the need for regulation in this area.
The UK’s exploration into a digital pound is a significant development in the country’s financial landscape. With the Bank of England and the British government actively working on a roadmap, it is clear that the idea of a digital currency has broad support from officials and experts. The consultations and design phase will last until 2025, allowing the public to provide input and contribute to the discussion. The eventual launch of a digital pound, if decided upon, will require significant investment and could arrive later in the decade. Despite being issued and owned by the Bank of England, it will not be a cryptocurrency and restrictions on holdings may be imposed. The launch of the Digital Pound Foundation, the National Crime Agency’s recruitment of officers to investigate cryptocurrency-related crimes, and the Treasury’s announcement to regulate activities related to crypto-assets further emphasize the UK’s commitment to exploring the potential of a digital pound and ensuring financial stability. The future of money in the UK remains uncertain, but the possibility of a digital pound offers a new way to pay, maintain confidence in the currency, and protect financial stability.