The Bank of England and HM Treasury are actively exploring the feasibility of a digital Pound CBDC, envisioned as a digital complement to physical cash. This initiative aims to provide households and businesses with a trusted, uniform, and accessible payment method in an increasingly digital economy. While the project promises to foster innovation and support financial inclusion, no decision has been made yet. Its future depends on comprehensive assessment, legislative approval, and ongoing public consultation.
When will the Digital Pound CBDC Be Launched?
The timeline for the introduction of a digital Pound remains dependent on the outcomes of the current design phase and subsequent decisions by policymakers. However, based on the Bank of England’s updates, a clearer picture is emerging:
- Design Phase Completion (2025–2026): The Bank of England and HM Treasury expect the design phase to last “a couple of years.” During this phase, they will develop a comprehensive blueprint, conduct technical experiments, and engage with stakeholders to address concerns and refine the proposal.
- Decision on Progression (2026): At the conclusion of the design phase, policymakers will evaluate the policy case for the digital Pound. This decision will depend on whether the digital Pound aligns with objectives such as maintaining monetary stability, promoting innovation, and supporting financial inclusion.
- Legislative and Build Phases (2026–2028): If a decision is made to proceed, primary legislation will be required to authorise the digital Pound. The legislative process will run alongside the development of the digital Pound infrastructure, including testing for security, resilience, and scalability.
- Earliest Launch (Late 2020s): Based on this timeline, the earliest a digital Pound could realistically be introduced would be in the late 2020s. This projection accounts for the time needed to finalise legislation, develop systems, and ensure stakeholder readiness.
This cautious approach reflects the Bank’s commitment to ensuring the digital Pound is thoroughly evaluated and designed to meet the needs of the UK economy.
Progress to Date: Laying the Groundwork
The Bank of England has made significant progress in exploring a digital pound, focusing on transparency, stakeholder engagement, and technological experimentation. Key milestones and contributions to date include public consultations, technological experiments, and the publication of foundational papers:
Public Consultations
- Consultation Papers:
- In February 2023, the Bank of England and HM Treasury released The Digital Pound: A New Form of Money for Households and Businesses?. This consultation paper outlined the case for a retail CBDC, proposed a model for the digital pound, and invited feedback from a wide range of stakeholders.
- The Digital Pound: Technology Working Paper was also published in February 2023, providing insights into the technological considerations for a potential digital pound, including its design and architecture.
- Responses to Feedback:
- In January 2024, the Bank published its Response to the Digital Pound Consultation Paper, summarising stakeholder feedback and highlighting the next steps in the exploration process.
- The Response to the Digital Pound Technology Working Paper was also issued, addressing technical feedback and refining the proposed technological framework.
Stakeholder Engagement
- Forums and Groups: The Bank has actively engaged with stakeholders through its CBDC Engagement Forum, Technology Forum, and Academic Advisory Group. These forums have provided valuable input on key issues such as privacy, offline payment capabilities, and the technological requirements for a digital pound.
- National Conversation: Ongoing consultations with businesses, academics, and the public ensure that diverse perspectives are incorporated into the design and assessment phases.
Technological Experiments
- Digital Pound Lab: A technology sandbox has been established to test innovative use cases and assess the feasibility of various technical designs. Click here to learn more about the Digital Pound Lab.
- Project Rosalind: A collaboration with the BIS Innovation Hub has tested APIs to foster innovation in retail CBDC functionality and support private-sector involvement. Amongst the participants was Quant, a founding member of the Digital Pound Foundation.
- Privacy and Security: Research collaborations, including those with MIT, have explored privacy-enhancing technologies and measures to safeguard user data.
By combining these efforts, the Bank of England is building a robust foundation for informed decision-making on the digital pound. Each publication, consultation, and experiment provides critical insights that bring the UK closer to determining the feasibility and potential benefits of introducing a CBDC.
Overcoming Public Concerns About CBDCs
The prospect of a digital Pound has raised public concerns, including fears about privacy, state control, and financial stability. The Bank has taken steps to address these concerns:
- Privacy Safeguards: Legislation will ensure that neither the Bank nor the Government can access users’ personal data or control spending habits.
- Maintaining Monetary Stability: The digital Pound is being designed to complement cash and commercial bank money, preserving the singleness of money and avoiding market fragmentation.
- Promoting Inclusion: By providing an alternative to existing digital payment systems, the digital Pound aims to support underserved populations and prevent financial exclusion.
What’s Next for the Digital Pound?
The digital Pound is still in its design phase, but key next steps include:
- Finalising the Blueprint: The Bank is working on a detailed blueprint that will outline the digital Pound’s design, operational framework, and policy objectives.
- Stakeholder Engagement: Ongoing consultations and the publication of design notes will refine the proposal and ensure diverse perspectives are considered.
- Assessment and Decision: A rigorous evaluation of the digital Pound’s costs and benefits will inform the decision on whether to proceed to the build phase.
- Legislation and Development: If approved, primary legislation will pave the way for the digital Pound’s development and implementation.
Challenges and Opportunities
While the digital Pound presents opportunities to foster innovation, inclusivity, and economic growth, it also faces challenges such as declining cash use and the rise of privately issued digital currencies. The Bank is addressing these by:
- Public-Private Collaboration: Building an open platform for private firms to develop innovative services on top of a resilient infrastructure.
- Promoting Competition: Ensuring interoperability with other payment systems to prevent market fragmentation.
- Showcasing Leadership: Demonstrating the UK’s fintech expertise through cutting-edge experimentation and international collaboration.
How is the Digital Pound Foundation involved?
The Digital Pound Foundation (DPF) is a non-profit organisation established in October 2021 with the mission of advocating for and supporting the development and implementation of a well-designed digital Pound in the United Kingdom.
The foundation operates independently, bringing together diverse expertise and perspectives from the public and private sectors to contribute to the ongoing exploration of central bank digital currencies (CBDCs) and other forms of digital money.
The DPF’s primary purpose is to ensure that the introduction of a digital Pound is carefully considered and designed to meet the evolving needs of the UK economy and its citizens.
By fostering collaboration across stakeholders – including policymakers, technologists, financial institutions, and academia – the foundation aims to:
- Support Innovation: Advocate for a digital Pound that acts as a platform for private-sector innovation, enabling the development of new products and services.
- Enhance Financial Inclusion: Ensure that the design of the digital Pound addresses the needs of all users, including those who are currently underserved by traditional financial systems.
- Promote Stability and Trust: Contribute to frameworks that preserve the integrity, stability, and confidence of the UK’s monetary system.
- Lead Global Conversations: Position the UK as a global leader in the exploration and adoption of CBDCs and other forms of digital money.
Since its inception, the Digital Pound Foundation has engaged in a variety of activities to advance its mission:
- Thought Leadership and Research:
- The DPF publishes reports, whitepapers, and thought leadership pieces that explore the design, policy, and technological considerations for a digital Pound.
- It has provided detailed input on key topics such as privacy, interoperability, and the potential impact of a digital Pound on the broader financial ecosystem.
- Engagement and Advocacy:
- The foundation has worked closely with industry stakeholders, policymakers, and regulators to ensure diverse perspectives are included in discussions about the digital Pound.
- It has actively participated in consultations by the Bank of England and HM Treasury, contributing insights on how a CBDC could best serve the UK’s economy.
- Educational Initiatives:
- The DPF hosts events, webinars, and roundtables to educate the public and industry professionals about CBDCs, their benefits, and potential challenges.
- It provides a platform for knowledge sharing, facilitating dialogue between key stakeholders.
- Collaboration with Global Initiatives:
- Recognising the interconnected nature of digital finance, the foundation engages with international organisations and initiatives to align the UK’s efforts with global standards and innovations in CBDC development.
The Digital Pound Foundation’s work is driven by the belief that a digital Pound must be thoughtfully designed to balance innovation, security, privacy, and inclusivity. Key principles advocated by the foundation include:
- Public-Private Collaboration: The foundation supports a hybrid model where the public sector provides the core infrastructure while the private sector develops user-facing services and innovations.
- User-Centric Design: The digital Pound should be accessible, intuitive, and responsive to the needs of individuals and businesses, ensuring no one is left behind.
- Interoperability and Standards: The digital Pound must integrate seamlessly with existing payment systems and emerging forms of digital money, such as stablecoins.
- Transparency and Trust: Clear communication and stakeholder engagement are critical to building public confidence in a digital Pound.
As the Bank of England and HM Treasury continue their exploration of a digital Pound, the Digital Pound Foundation remains a vital advocate and resource. By fostering collaboration, facilitating dialogue, and sharing expertise, the foundation is playing a key role in shaping a future where a well-designed digital Pound can enhance the UK’s monetary system, drive innovation, and ensure inclusivity for all.
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Conclusion
The Bank of England has made significant progress in exploring a digital Pound, from public consultations to technological experiments. While a decision to proceed is still years away, the Bank’s methodical approach ensures that the digital Pound will be carefully designed to meet the needs of a modern economy. If introduced, the digital Pound could play a transformative role in the UK’s payments landscape, fostering innovation, inclusion, and stability.
