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DIGITAL POUND LIKELY THIS DECADE, TREASURY SAYS

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12 hours ago
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Image source, Getty Images

A state-backed digital pound is likely to be launched later this decade,
according to the Treasury and the Bank of England.

Both institutions want to ensure the public has access to safe money that is
easy to use in the digital age.

Chancellor Jeremy Hunt said the central-bank digital currency (CBDC) could be a
new "trusted and accessible" way to pay.

But it will not be built until at least 2025.

"We want to investigate what is possible first, whilst always making sure we
protect financial stability," Mr Hunt said.

The Treasury and the Bank of England will formally start a consultation for the
digital currency, on Tuesday.



Cryptocurrencies are not backed by a central bank and the value can shoot up and
down rapidly.

But while it may use technology similar to cryptocurrencies such as Bitcoin and
Ethereum, the digital pound, issued by the Bank of England, would be less
volatile. Ten digital pounds will always be worth the same as £10 in cash, the
Treasury says.

Though, as holidaymakers will know, the value of the pound does change relative
to other currencies.

Prime Minister Rishi Sunak asked the Bank of England to look into backing a
currency, in 2021, as chancellor.

And in October 2022, Mr Sunak's Financial Service Minister Andrew Griffith
warned a lengthy delay could create problems for the economy.




MONETARY SCIENCE FICTION?



Right now, there is probably little need for a digital pound. People use their
debit cards or phones, or even watches to fulfil the same function. It is a
solution to a problem that does not yet exist.



But this is looking towards a near future that sounds like monetary science
fiction. At its heart it is about data on what you spend, and what the entire
population spends. It is a world where people might just choose to trust
international private sector brands, in finance or in tech, more than the state.
Think Amazon, or Facebook, or maybe Chinese-owned Alibaba or Tiktok having a
version of sterling.

Companies that control the data on everything someone spends, when and where
they spend it, will sit on a priceless asset. Unregulated digital currencies
could offer those companies incentives to create walled gardens, fragmenting the
pound system. It would make controlling the economy more difficult, because £1
might not be worth £1 everywhere.

This is where today's ideas come in. Neither the Bank of England nor Government
would have access to the data on transactions with a digital pound. But
consumers could pick providers, not just banks, to hold their cash in digital
wallets, with varying degrees of privacy. Some users might be comfortable with
their wallet provider knowing all their transactions, if they received a
discount for example. Others might want to stay as private as possible. The
Treasury wants to encourage innovation.

Other, bigger blocs, such as the USA and the Eurozone also want their digital
dollars and digital euros to be international means of exchange. That is less of
an overt aim here. The eye here is on maintaining UK monetary sovereignty
against upheaval from the likes of Big Tech.




INITIAL RESTRICTIONS

If given the go-ahead, there would then be significant investment to launch the
currency.

There are likely to be initial restrictions on how much of the currency any
individual or business could hold.



Bank of England governor Andrew Bailey said the digital pound would provide a
new way to make payments, "help businesses, maintain trust in money and better
protect financial stability".

He stressed the importance of the consultation being the "foundation" for what
would be a "profound" decision for the way we use money in the future.

What could a digital pound look like?

 * It would replicate the role of cash, in a digital world
 * Issued by the Bank of England
 * Subject to rigorous standards of privacy and data protection
 * Accessed through digital wallets via smartphones or smartcards
 * Intended for payments online, in store and to friends and family
 * Initial restrictions on how much an individual or businesses could hold

Countries around the world, including the US, China and the Eurozone, are
considering similar proposals.


MORE ON THIS STORY

 * Government considering digital-pound currency
   
   10 January
   
   

 * UK takes next steps in digital money plan
   
   9 November 2021
   
   

View comments


RELATED TOPICS

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 * Money
 * Bank of England
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