The Bank of England and Treasury are expected to endorse the creation of a “digital pound” next week as they unveil a roadmap for the introduction of a new central bank currency by 2030. The move comes after Prime Minister Rishi Sunak established a taskforce two years ago to investigate the potential of creating a central bank digital currency (CBDC).
“Likely Need for a Digital Pound” According to extracts from a consultation paper seen by The Telegraph, the Bank of England Governor and Chancellor, Andrew Bailey and Jeremy Hunt, respectively, state that it is “likely a digital pound will be needed in the future”. Although it is too early to start building infrastructure, they believe further preparatory work is justified.
The Concept of CBDC
A CBDC would use blockchain technology, similar to cryptocurrencies, to record transfers on a central digital ledger. Currently, the Bank of England creates money digitally by issuing new reserves to commercial banks, but a CBDC would enable the bank to issue new currency directly to individuals or businesses. However, the Bank of England does not plan on having a direct relationship with the public, such as people being able to open an account with the Bank.
A CBDC would allow people to hold digital currency on their devices, such as smartphones, without needing a bank account. It would be issued by the Bank of England with the same value as its physical banknote equivalent. The Bank and Treasury will launch a four-month consultation for businesses, academics, and the public to share their views on the launch of a digital pound.
The Bank and Treasury are expected to begin the design phase of the project to develop a blueprint of a digital pound. The earliest date for the launch of a UK CBDC is 2025, with the creation of a CBDC expected to take several years and require significant public investment.
Concerns About Cash’s Phasing Out
The move may spark fears of cash being phased out, but the government passed legislation last year to protect access to cash. The Bank of England has stated that any digital currency would sit alongside cash rather than replace it.
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Skepticism About CBDC
Former Bank of England governor, Lord King, warned this week that the introduction of a CBDC offered “risks but no obvious benefits”. He stated that most transactions are already digital and served well by the current system of commercial banking, and that a CBDC was not necessary. A report by the Lords Economic Affairs Committee also warned that the introduction of a CBDC could lead to more state surveillance and financial instability.
The Bank and Treasury are expected to stress that personal details will not be known by the government or the Bank of England, with CBDCs offering the same privacy as most of the money used today. However, the consultation paper suggests that under certain circumstances, law enforcement agencies could have access to users’ data.
