Bank of England and Treasury explore the need for a digital pound

Bank of England

The Bank of England and Treasury are exploring launching a digital pound in a move that officials claim would firm up financial stability in Britain.

“No decision has been taken at this stage,” the pair’s experts said yesterday, but added that what some are dubbing ‘Britcoin’ is “likely to be needed in the future”.

The ‘digital pound’ is a kind of central bank digital currency (CBDC).

CBDCs share pretty much all the same properties as cash, but backers reckon they can cut transaction costs for consumers.

Critics say mobile banking services offer the same function as a CBDC and have raised concerns about governments being able to closely monitor individuals’ finances.

“As the world around us and the way we pay for things becomes more digitalised, the case for a digital pound in the future continues to grow. A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability,” Andrew Bailey, governor of the Bank of England, said.

The central bank and Treasury said a decision to go ahead with a CBDC would not be taken until around 2025.

If they gave it the thumbs up, a trial phase would be rolled out in which selected Brits could deposit a capped amount of money in the digital system.

No interest would be paid on CBDC deposits and retail lenders would use the digital infrastructure to provide Brits digital banking services.

A CBDC would better bind the monetary system together in the same way that cash does, officials said, by establishing a single stable asset against which other forms of currency could be exchanged.

“While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new way to pay that’s trusted, accessible and easy to use,” chancellor Jeremy Hunt said.

The government late last night said submissions to its probe into whether a CBDC is needed are open until 7 June. The digital pound could be launched in the second half of the decade at the earliest.

Experts said uptake of a digital pound would strengthen the Bank of England’s ability to spot pinch points in the UK’s financial network.

“CBDCs could equip central banks with new tools to significantly help soften the impact of forthcoming financial crises, given they would provide a real-time view of risks and currency outflows,” Martin Hargreaves, chief product officer at blockchain firm Quant, said.