What is the true purpose of the digital pound?

 What is the true purpose of the digital pound?

digital currency

We are thinking about the problem of the digital pound. A central bank digital currency is the term for this kind of money (CBDC). It cannot take the place of cash.

We are examining a digital pound case.

The Bank of England will introduce the digital pound, a brand-new kind of currency that everybody may use every day. It will be accepted for payment both online and in-store.

A central bank digital currency is the term for this kind of money (CBDC). It could alternatively be referred to as "Bitcoin" or "digital sterling." The UK version of a CBDC is referred to as the "digital pound."

Similar to bank notes, the value of the digital pound will be steady and it will be valued in sterling. £10 in digital pounds will always be worth the same as £10 in cash.

Even if we implemented it, money would still be needed. We are aware that many individuals place a high value on having access to cash. Therefore, as long as people wish to use it, we will continue to do so.

There won't be a digital pound or other cryptocurrency. The digital pound will be created by the Bank of England and supported by the government, in contrast to cryptocurrencies that are privately issued.

We have examined the need of a digital pound and offered a number of design alternatives in a consultation document that we have released.

How is this supposed to function?

A day in the life of a user of the digital pound

7 a.m.

Use Digital Pound Wallet to see your balance.

10:00

With your smartphone, you may use the same device that you use to pay with credit and debit cards to purchase a cup of tea using digital pounds.

Give the electrician your digital pounds, and you'll both get an immediate message letting you know that the payment was received.

6:00

Use the digital pounds option at the internet checkout to get groceries online.

8:00

Move funds to your virtual pound wallet from your bank account.

We'll probably need a digital pound to complete our task.

The manner that consumers pay for goods is evolving. Cash is not being utilized as often as it once was. Digital payments are more prevalent.

Additionally, new kinds of wealth are about to emerge. A few of them might endanger the UK's financial stability.

The Bank of England and HM Treasury predict that a digital pound will be beneficial and necessary in the future given these tendencies.

The foundation of trust in our monetary system is the money we issue as the central bank of the United Kingdom. The UK's monetary and financial stability is supported by this kind of money. The only money we allow the people to use these days is bank notes. We may be able to provide the UK with this anchor if we had a digital pound.

Additionally, cash plays a crucial role in enabling the conversion of one kind of money into another. For instance, you may use a cash machine to withdraw cash from a bank account in the form of banknotes. The term "homogeneity" of money refers to this. In the event that most payments are made digitally in the future, having a digital pound could help us keep this consistency.

The alternatives available to consumers for making payments may likewise be enhanced by the digital pound. Our suggested digital pound model will encourage innovation from private businesses, improving payment efficiency and providing customers with additional options.

In our consultation document The Digital Pound: A new form of money for homes and businesses?, you may learn more about our reasons for introducing the digital pound. You can get further information.

The digital pound's next stages

Whether or not to implement a digital pound is still up in the air.

Over the next two to three years, work will advance to the design phase, which will examine the technological and legal prerequisites for the digital pound.

We shall proceed to the creation phase if the outcomes of this phase indicate that the argument for the digital pound is strong. In the latter part of the decade, we would set the earliest possible date for the release of a digital pound.

what we've released

For a while now, we have been investigating the digital pound. We released a discussion paper on CBDCs in March 2020. It described one potential method for creating a digital money issued by a central bank. We asked academic institutions, the payments sector, and other interested parties for their opinions. A synopsis of the comments made on our 2020 discussion paper is available.

The Bank and HM Treasury unveiled the Digital Pound in February 2023. Is It a New Way to Pay for Homes and Businesses? released a document for input on.

In this article, we present our suggested architecture for a digital pound and analyse the public policy justification for its introduction in the UK.

Alongside it, we also issued a working paper on technology. The technical components of the model under consideration—performance, security, resilience, and energy consumption—are examined in this study.

your inquiries addressed

Why is the digital pound the Bank of England's main focus?

The reason the digital pound is on our minds is because payments are evolving.

Cash isn't as widespread as it once was since more and more people are making digital payments.

In addition, new money is being created, some of which might be dangerous for the stability of the financial system.

The digital pound will function similarly to an electronic version of Bank of England banknotes.

We think the digital pound can improve payments by fostering innovation and boosting efficiency while simultaneously preserving our financial system and preserving public confidence in money.

Will a digital pound be introduced by the Bank of England?

The decision to introduce a digital pound has not yet been made. We're currently looking into potential. However, it will take many years until we issue a digital pound if that's our decision.

Will cash be replaced by digital currency, the pound?

A digital pound could not take the place of currency. We would want it to function in conjunction with cash instead, since we are aware that some individuals may choose to use both.

Will the Bank of England provide me a digital pound account?

Not in the conventional sense, anyhow. Thus, you won't be able to register for a Bank of England account. You will be able to access the digital pound by using a digital wallet that a commercial business will supply. We would approach it in this manner because we think private businesses are better suited to provide cutting-edge goods and services to the general population.

How will my digital pounds be put to use?

You could make the same payments to friends and family, make in-person or online purchases, and do all of these things if we created a digital pound.

However, if new technologies develop, we can integrate them into the digital pound's architecture. This will enable the wallet providers—through whom you will get digital pounds—to create and develop solutions that will enable you to make innovative uses of your money.

These developments have the potential to alter consumer payment behavior by lowering costs and speeding up transactions.

Wallets will be created by private businesses, including banks, payment processors, and eventually new businesses. However, much like banknotes, the digital pound will be issued directly by the Bank of England. This implies that you will get the same level of protection and safety that we do with our money now.

Will my financial activities be tracked with the digital pound?

The Bank of England and the government will not get any personal information about you if you use the digital pound, nor will they be able to know how you utilized your funds. Through a virtual wallet, you will be able to access digital pounds, and the wallet provider will want certain personal information from you. This is due to the fact that you and your provider will be in business together, and in order to combat financial crime and fraud, they will need identification. Data privacy regulations will continue to safeguard your privacy, and neither the government nor the bank will have access to your personal information.

Will using the digital pound be restricted by the Bank of England?

Your digital pounds will be unrestricted by the government or the Bank of England, and neither may program your spending with them. If you'd want, you will be able to schedule your own payments, however.

These days, you may use it to set up automatic payments, such paying your rent or mortgage on a certain day. However, this capability may also result in fascinating advancements in payments in the road.

Is the digital pound going to be trustworthy and safe?

We would make sure it was protected to the highest standards against things like cyberattacks and power disruptions if we implemented a digital pound.

These days, there's also the possibility of fraud while processing payments. Similar to bank notes, authorities and companies offering digital-pound services will be accountable for making sure the digital pound contributes to the fight against fraud. Customers will be granted the same safeguards as they get now.

Will my digital pounds be subject to interest?

Just as you won't get interest on your actual cash, neither will you receive interest on your digital pounds. The digital pound is not meant for savings, but rather for regular consumption.

Will there be another cryptocurrency after the digital pound?

The digital pound is not going to be a virtual money. It is likely that you have heard of cryptocurrencies such as Ether and Bitcoin. The digital pound will be issued and endorsed by the Bank of England, whereas these are privately issued. Additionally, the value of cryptocurrency assets may fluctuate greatly, making them less effective for making payments because of how fast and suddenly their worth might change. Nonetheless, the digital pound's worth won't fluctuate over time. This implies that a £10 banknote and £10 of a digital pound will be equivalent.

Will there be environmental consequences from the digital pound?

The environment wouldn't suffer from a digital pound. It won't use the same energy-intensive techniques as cryptocurrency like Bitcoin and will be very efficient. The bank's efforts to lessen its carbon impact and achieve its environmental objectives would be consistent with a digital pound.

Will individuals who are internet savvy be the only ones eligible for the digital pound?

Everyone should be able to utilize the digital pound, not only those who are computer savvy, if it were launched. The majority of users will use a smartphone virtual wallet to access their digital pounds. However, we are also thinking about alternative approaches, such using a real card like a debit card.

Why is there a limit on the number of digital pounds I can hold?

We believe that a cap on the amount of a pound that individuals may own would be necessary if we implemented a digital currency. This will assist guarantee that there won't be any interruption and allow us time to assess any possible effects on the financial system.

We will revisit this restriction when we have a better understanding of it and how users use it. Although we haven't settled on a cap yet, it will be high enough for regular spending. So you won't have to worry about receiving any kind of cash, even your paycheck.

Taskforce for digital pounds

During April 2021 Fintech Week, the Chancellor announced the creation of the Digital Pound Taskforce (formerly known as the CBDC Taskforce). HM Treasury and the Bank of England have formed this taskforce to coordinate the investigation into the possibility of a UK CBDC. The taskforce contributed to a consultation document that was released on February 7, 2023.

With whom are we toying?

We are conducting interviews with companies and local communities to learn more about the potential effects of the digital pound.

Additionally, we operate on a global scale. For instance, we are collaborating on initiatives like Rosalind, which attempts to create creative use cases for CBDCs, with the Bank for International Settlements. Additionally, we stay in contact with other nations by participating in forums like G7Opens in a new window.

The following outside forums and organizations provide support for the work we are doing:

Academic Advisory Group for CBDC

In order to gather academic feedback and promote multidisciplinary dialogue on a variety of subjects pertaining to retail CBDCs, we established an Academic Advisory Group.

Forum for CBDC Engagement

The CBDC Engagement Forum examines every facet of digital currency issued by central banks, including the technology involved. Senior executives from financial institutions, businesspeople, and civil society organizations are among the Forum's members.

Technology Forum for CBDC

The technology that a digital currency issued by a central bank may use is examined by the CBDC Technology Forum. This makes it possible for us to include individuals with a variety of backgrounds and viewpoints. This aids in our comprehension of the technological difficulties involved in creating, setting up, and running a CBDC.

At the design stage, we will establish short-term working groups with HM Treasury to go further into several subjects. Representatives from various organizations that have little prior expertise with the topics under discussion comprise these working groups.