What we know about the possible launch of a “digital pound” by the Bank of England

The Bank of England said that, unlike cryptos, the “digital pound” would be issued by a government agency instead of the private sector, making it less susceptible to price fluctuations.

Plans are now being studied by the BoE and HM Treasury to introduce a new “digital pound” in the UK within the next 10 years.

If implemented, the Bank would be the exclusive issuer of a central bank digital currency (CBDC) that may be used by individuals and organisations for regular purchases both offline and online.

The Treasury argues this new currency will “complement cash” and digital banking since it may be used alongside traditional money.

Yet, the “digital pound” wouldn’t be “volatile” like cryptos since it would be issued by a government agency rather than a private company.

The Government and the Bank of England have both indicated that they believe a digital version of the pound would be useful in ensuring that people have easy access to a stable currency.

The Initiative

As the BoE fights inflation, that might encourage “private sector choice, innovation, and efficiency in digitally paying”, both believe.

While no final decision has been made as of yet, the Bank of England and the Treasury have said in their announcement of the consultation yesterday that they want to continue looking into the matter.

Jeremy Hunt, Chancellor of the Exchequer, made the following statement: “Although currency will continue to have its place in society, a digital pound issued and supported by the Bank of England may usher in a new era of convenient, secure, and accessible means of exchange.”

That's why it's important to us to look at what can be done initially, while never compromising on safeguarding the economy.

The Bank of England has said that a decision on whether to introduce a digital version of the pound would be made somewhere in the middle of this decade, taking into account “future advancements in money and payments”.

The digital version of the pound may be introduced no sooner than the middle of the 2020s.

Value tied to fiat pound

The value of a digital pound is the same as that of physical currency; the difference is that digital pounds may be stored in and withdrawn from digital wallets on mobile devices or smartcards.

The Bank of England asserts that the proposed payment mechanism would be “widely accessible”, “risk-free”, “convenient”, and “trusted”, thanks to “rigorous norms of privacy and data security”.

“Holders would enjoy the same amount of privacy as a bank account”, it promised. “Neither the Bank, the Government nor would be able to access your personal data.”

Initial limits on spending or holding may be established; this is still up for debate.

More than a hundred nations, including China, the United States, and countries in the Eurozone, which are going through a recession, are purportedly working on central banking digital cash.

What is the digital pound?

Our world is becoming a digital one. So, the BoE wants to reduce our reliance on hard currency.

The Bank of England and HM Treasury are exploring the possibility of a digital version of the pound as a means of keeping up with the times. This would be a digital currency issued by the Bank of England and used in institutions' proprietary electronic wallets.

You could use your phone to purchase online and in stores, as well as transfer money to friends and family members. Even if we implement the digital pound, you would still be able to use physical currency and bank accounts to make purchases.

It has been brought to the BoE’s attention that many might find this to be helpful, but they have not yet decided whether or not to implement it. A few of nations have actually implemented their own digital money, and well over a hundred others are exploring the possibility.

The BoE believes that a digital pound may provide an alternative payment option, aid companies, increase public confidence in the currency, and strengthen the security of our financial system.

What is the latest digital pound news?

The Bank has now posted its CBDC consultation document and a related technological working paper. The necessity for such a digital currency was addressed in an engaging lecture given by Deputy Governor for Financial Stability, Sir Jon Cunliffe. 

Sir Jon discussed a public-private arrangement wherein the Bank would provide the central infrastructure and digital pound plan, and the private sector (“approved non-banking companies” or banks) would provide associated payment services and wallets, the “two tier” approach preferred by central banks internationally. 

Precisely how this retail CBDC will operate remains to be seen during the present condition of the economy.

Is the Bank of England going to issue a cryptocurrency?

The Bank has been clear that it has no interest in developing its own coin. Cryptocurrencies like Bitcoin are seen as extremely speculative by the bank and not a viable alternative to fiat currencies, which are currencies issued by central banks.

The Bank, on the other hand, claims it wants to create stablecoins. Stablecoins are digital currencies valued in relation to an established standard, such as the value of gold or the US dollar.

As a result, digital currency prices will track the pound spot price, rather than fluctuating wildly up and down relative to the pound as with Bitcoin over the previous year.

When can we expect the introduction of the digital pound?

The future of the digital pound has not yet been decided. If it goes through at all, it won't be released until the latter part of this decade.

For what purpose will it be used?

According to the Bank of England, using the digital pound will be very similar to how people now use their credit cards to make online purchases. It could be used to purchase on sites like Amazon and Facebook Marketplace from a mobile device.

Nevertheless, the Bank has said that it cannot be used to accrue interest, and that there will be restrictions on how much money anyone may have, at least at the outset. This means that it is not likely to replace regular bank accounts anytime soon.

Will it replace fiat currency?

Not at all, or at least not anytime soon. According to the Bank of England, the launch of the digital pound is meant to supplement, rather than replace, traditional payment methods like cash. It is anticipated that the early impact of a digitalised pound would be low; but, if broad acceptance occurs, it has the potential to surpass the volume of cash transactions.

What makes it unique compared to other coins?

The Bank of England, not speculators or private companies, would be responsible for issuing the digital version of the pound.

As there will be a centralised authority behind the currency, the Bank claims it would have inherent value and be less volatile than unbacked crypto-assets.

Could it improve financial stability?

Without a centralised digital currency issued by the Bank, digital payments may shift towards stablecoins generated by private enterprises.

Although these coins may be tied to a stable currency like the pound, the loss of confidence in the company or the management of the coin could cause a run on the coin and the collapse of the company, resulting in financial losses for individuals and businesses and posing a threat to the value of the pound.

Instead, consumers and businesses may have faith in a digital currency issued by the Bank because of how stable it is.

Are other central banks planning on launching similar coins?

To answer your question, both the Federal Reserve Board of the United States and the European Central Bank are considering introducing their own digital money for the dollar and the euro. But, none of these institutions is any closer to introducing one than the Bank of England is.

Takeaway

The Bank of England might create a new kind of currency, the “digital pound”, for common usage. It may be used for purchases both offline and online. Digital currency issued by a central bank is so named (CBDC). It's not uncommon to hear people refer to it as “Britcoin” or “digital sterling”.

The Bank of England and the Treasury (which has already posted a position for a head of digital currency) have essentially said that they recognise the need for a digital pound but are cautious about rushing into what the Bank of England's governor has called a “profound” decision about the future of money. 

On both counts, they have my full agreement. As a digital currency proponent, I'm excited to see digital Sterling in use, but it must be the proper type of digital Sterling, one that serves civil society rather than just the ambitions of technologists.

Launching digital currency will be a once-in-a-generation shift to the way money works, so it's crucial that the Bank of England, the European Central Bank, the Federal Reserve, and everyone else takes the time to figure out how it should function and make sure it's done right.

As the old adage goes, “there is no burning platform” because although digital money is necessary, we don't have to have it right this second, and speed isn't as vital as quality.

In order to gain traction in the chaotic landscape of cryptocurrencies and stablecoins, the Bank of England has launched a consultation on the establishment of its own digital pound.

The consultation, issued in tandem with the Treasury, details the proposed mechanisms for the digital currency and solicits feedback from companies and the general public on how it can be best implemented.