The Bank of England and the Treasury are drawing up plans for the introduction of a new digital pound as an alternative to cash. The government is accelerating its response to the growth of private cryptocurrencies and stable coins by launching a four-month public consultation on “Britcoin” starting on February 8th. The Bank and the Treasury aim to allay public concerns regarding the safety of a state-backed digital currency, which they promise will be as secure as cash, by examining the technical issues involved in creating a central bank digital currency.
A decision on the matter is expected by the mid-decade, although Chancellor of the Exchequer Jeremy Hunt and Bank of England Governor Andrew Bailey emphasize that the government may still choose not to proceed. The consultation document argues that a digital pound will eventually be necessary. If approved, the earliest date for cash to be held in digital wallets by the private sector would be the end of the 2020s.
Governor Bailey stated that as the world becomes more digitalized, the need for a digital pound continues to grow. A digital pound would offer a new payment method, benefit businesses, maintain trust in money, and improve financial stability. The Bank and the Treasury have promised that the digital pound will be subject to strict privacy and data protection standards. It would not be anonymous and would need to identify and verify users to prevent financial crime, essential for trust in the digital pound.
Major central banks, including the US Federal Reserve and the European Central Bank, are also considering official digital currencies, but the UK plans are more advanced. The Bank and the Treasury believe that the arrival of private digital currencies poses a risk of fragmenting the monetary system and that a reliable and efficient official option will be necessary as the use of cash continues to decline. A digital pound would be backed by the state, unlike other cryptocurrencies. Chancellor Hunt stated that while cash will still exist, a digital pound issued and backed by the Bank of England could be a new, trusted, accessible, and easy-to-use way to pay.