‘Digital pound’ enters next stage of design phase

The UK’s proposed central bank digital currency (CBDC) has entered the next stage of its design phase after the Bank of England (BoE) and the Treasury on January 25 issued a joint response to last year’s public consultation. 

The consultation was published in February 2023 and received more than 50,000 responses. The report published yesterday outlines some of the properties of a potential “digital pound”. The design phase is expected to last until around 2025, after which a decision about whether to introduce the CBDC will be made. 

Private digital money held as bank deposits sent via bank transfers or card already accounts for around 95% of payments in the UK.

The proposed structure for the digital pound – with which “most respondents” agreed, according to the report – largely resembles the “tiered” structure for digital payments that currently exists in the UK’s banking system. However, one important difference is that the digital pound would be a direct claim on the central bank. The BoE would provide the core infrastructure and ledger, and payment interface providers would not hold end-users’ funds directly.

The joint response stated that the BoE and the government would have “no access to personal data” through the central bank’s core CBDC infrastructure. The digital pound would not be “programmed” – meaning spending would not be controlled – by the BoE or the government. There would also be “privacy-preserving payment options”. 

However, civil society groups raised concerns during the consultation that future governments could either program money itself or pressurise payment interface providers into doing so on its behalf. The BoE and the Treasury said private sector providers would only program payments “subject to users’ consent”.

The report said that “in recent months” the BoE and Treasury had “refreshed the format and memberships of the CBDC Engagement and Technology forums”. These include firms such as Google, Mastercard, Visa, Swift and PayPal; academic institutions such as the Massachusetts Institute of Technology, University College London and the Cambridge Centre for Alternative Finance; and banks such as JP Morgan, Lloyds, Standard Chartered and Barclays. 

With regards to privacy, the report stated that law enforcement agencies would only have access to users’ personal information “in limited circumstances and where there is a fair and lawful basis – as is the case today”. 

It added that the government was committed to introducing primary legislation with a vote in both houses of the UK parliament: “Legislation would guarantee both users’ privacy and that neither the Bank of England nor the government would control how you spend your money.”