STRICTLY EMBARGOED UNTIL 22:30 on 6th February 2023: HM TREASURY AND BANK OF ENGLAND CONSIDER PLANS FOR A DIGITAL POUND

A DIGITAL POUND is likely to be needed in the future according to a consultation paper published today by HM Treasury and the Bank of England.

The Bank of England will now take forward further research and development work and the public are being invited to give their views on the scheme to be taken forward.

The consultation is being launched because both HM Treasury and the Bank want 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.

Chancellor of the Exchequer, Jeremy Hunt said:

"While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new way to pay that’s trusted, accessible and easy to use.

"That’s why we want to investigate what is possible first, whilst always making sure we protect financial stability.”

Governor of the Bank of England, Andrew Bailey, said:

“As the world around us and the way we pay for things becomes more digitalised, the case for a digital pound in the future continues to grow. A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability.

“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.” 

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 of a digital pound would always be worth the same as £10 of cash
• Issued by the Bank of England, widely available and convenient to use
• 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
• Accessed through digital wallets offered to consumers by the private sector through smartphones or smartcards
• Intended for payments, online, in-store, and to friends and family, rather than savings, with no interest paid on holdings
• Initial restrictions on how much an individual or businesses could hold

Countries around the world are considering similar proposals including the Eurozone and the US and China.

Unlike cryptoassets and stablecoins, the digital pound would be issued by the Bank of England and not the private sector. We are separately already legislating to protect Access to Cash.

This means that it will have intrinsic value and not be volatile, unlike unbacked cryptoassets as there would be a central authority to back it.

The needs of vulnerable people are being considered in the digital pound design process ensuring that it would be simple and straightforward to use and understood and trusted by the public as a form of money.

A decision about whether to implement a digital pound will be taken around the middle of the decade and will largely be based on future developments in money and payments. The earliest stage at which the digital pound could be launched would be the second half of the decade.

FURTHER INFORMATION:

How might a digital pound work?

• Platform model: The Bank would provide the central public infrastructure in the form of a ‘core ledger’ – a fast, resilient, secure technology platform – which would provide the minimum necessary functionality. Regulated private firms could then use this infrastructure to design innovative, user-friendly services and handle all customer-facing interactions.

• Data protection and privacy: 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. This is essential for trust and confidence in money and therefore wide use of the digital pound. The intention is to create a digital pound that is inclusive and allows users to be in control of their data. This will be considered in the design of the digital pound. Neither the Government nor Bank would program a digital pound or restrict how it was spent.

• User experience: Digital wallets could allow people to seamlessly manage their balance and make payments. Wallets would be used in the same way as current contactless payments and use the same merchant infrastructure. Payments would be speedy and confirmed immediately. A digital pound may also bring benefits by adding to already existing payments options, support financial inclusion and improve cross-border payments which can be expensive, slow and opaque.

• Holding limit: A limit on individuals’ holdings would apply at least in the introductory phase. This would strike a balance between both encouraging use and managing risks, such as the potential for large and rapid outflows from banking deposits into digital pounds. These limits could be amended in the future.