The Bank of England is starting further research and development work on a digital pound for purchasing goods and services – something that’s likely to be needed in the future, the regulator said Monday.
The central bank and the country’s finance ministry wants the public to weigh in on its plans for a digital version of the pound sterling, and will publish a consultation open to public comment on Tuesday.
"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,” Finance Minister Jeremy Hunt said in a statement to the press. Jon Cunliffe, deputy governor of the Bank of England, has previously said the U.K. may need a digital pound as a more secure alternative to private cryptocurrencies.
The U.K. is also busy setting up new regulatory frameworks that sets it apart in the region following its infamous exit from the European Union. Last week, the Treasury published its plans to regulate the country’s crypto sector, which – as industry members pointed out – deviated slightly from the EU’s Markets in Crypto Assets (MiCA) initiative.
The digital pound consultation is the U.K.’s answer to the European Central Bank’s (ECB) two-year investigation into a retail digital euro, which is expected to wrap this year and make way for a decision on issuing one.
As the Bank of England envisions it, a digital pound it issues would be accessible through digital wallets offered by the private sector via smartphones or smart cards. The central bank digital currency is intended for on- and offline payments with no interest paid on holdings, according to the announcement.
The Bank of England plans to run its own experimentation and design phase in the next two years, according to people familiar with the matter – which will be followed by a decision on whether or not to build a digital pound. A pilot test on its central bank digital currency won’t kick off until at least 2025.
The digital pound so far doesn’t sound too different from a potential digital euro, according to what’s laid out in the announcement. Neither would be fully anonymous but promises to preserve some level of privacy and be subject to data protection standards. There would be a limit on individual holdings and no interest paid on holdings, the release said. The ECB is also contemplating caps on issuance and individual holdings.
Regulated firms will be able to use the digital pound infrastructure to “design innovative, user-friendly services and handle all customer-facing interactions,” the press release said.
The decision on issuing a digital pound “will largely be based on future developments in money and payments,” the press statement said. The public's responses to the consultation, could also influence the decision.
The consultation, set to be published on Tuesday, will lay out the central bank’s plans in detail.
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