Britain continues to work on a possible digital pound that could be used by the second half of this decade and help prevent fragmentation of the electronic cash system dominated by tech giants or banks.
The Bank of England and the Ministry of Finance have said a central bank digital currency (CBDC) is likely to be needed later in the decade as they launched a new consultation to design such a system.
“While cash is here to stay, a digital pound issued and backed by the Bank of England can be a new method of payment that is reliable, accessible and easy to use,” Chancellor of the Exchequer Jeremy Hunt said in a statement.
“That is why we want to investigate what is possible first, always making sure that we protect financial stability.”
Andrew Bailey, the governor of the Bank of England, said the implications of the digital pound – including privacy issues – needed to be taken into account.
“These consultations and the further work that the Bank will do now will be the basis for what will be a profound decision for the country about the way we use the money,” he said.
Prime Minister Rishi Sunak has asked the Bank of England to look into the issue of a central bank digital currency when he is finance minister in 2021.
Other central banks, such as the US Federal Reserve and the European Central Bank, are also considering launching their own central bank digital currencies and have already launched 11 countries.
Unlike crypto assets, the digital pound will be issued by the central bank, not the private sector, and its value will be fixed.
Under Britain’s proposals, individuals would not have direct accounts with the Bank of England. Instead, they will have accounts with private digital wallet providers, which will save digital pounds on public infrastructure.
Officials said the digital pound, while offering services similar to those already available to consumers, would avoid the risks of competing, interoperable systems run by tech giants or banks, and would drive innovation in the future.
Central bank digital currencies
The idea of CBDCs gained traction after Facebook in 2019 proposed a crypto asset called Libra that would peg its value to a basket of currencies. It was eventually closed.
The new head of innovation at the Bank for International Settlements, a forum for central banks, told Reuters in an interview published Monday that CBDCs will face geopolitical constraints.
China has conducted the largest cross-border CBDC trial to date.
The Bank of England and the Ministry of Finance said that Britain will impose initial limits on the amount that individuals or companies can hold CBDCs as a precaution to avoid the risk of destabilizing the financial system.
BoE Deputy Governor John Cunliffe is due to deliver a speech on Tuesday to update the financial industry on the BoE’s work on the central bank.
