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Bank of England unveils the consultation paper for its digital pound project
(Kitco News) - The Bank of England has released a new consultation paper that outlines the goals of its digital pound project and pitches the idea of creating a “new form of digital money for use by households and businesses for their everyday payments needs.”
According to the central bank, physical banknotes have been used less frequently by households and businesses in recent years as technology has given rise to new forms of digital money and new ways to pay with it.
“A digital pound would help to ensure that central bank money remains available and useful in an ever more digital economy, continuing to bolster UK monetary and financial stability while safeguarding the UK’s monetary sovereignty in a changing global financial system,” Chancellor of the Exchequer Jeremy Hunt and Bank of England Governor Andrew Bailey said in a statement.
Based on the design outlined in the paper, the central bank would be the sole issuer of a digital pound, which would be accessible to individuals and businesses via smartphones or cards. Wallets would be anonymized on the central bank's ledger to address privacy concerns and the digital currency would be non-programmable, meaning authorities can't control how people spend their money.
“The Bank will not implement central bank-initiated programmable functions,” a separate technical working paper said. “Instead, the Bank would provide the necessary infrastructure for the private sector to implement programmability features for users. Those features would require user consent.”
The consultation paper is meant to pitch the idea of a digital pound to the public and solicit comments on the proposed design to help the central bank determine if the creation of a digital pound is warranted. The ultimate goal of the paper is to help increase public engagement and work to enhance public trust in the event that a digital pound is launched.
“On the basis of our work to date, the Bank of England and HM Treasury judge that it is likely a digital pound will be needed in the future. It is too early to commit to build the infrastructure for one, but we are convinced that further preparatory work is justified,” the authors wrote.
They also argued that the creation of a digital pound could help foster private sector innovation and promote “further choice, competition, efficiency and innovation in payments.”
The paper is seeking feedback from the public on the policy and technical work that has been completed so far to help determine whether or not to move forward with creating the infrastructure needed for a digital pound.
“The journey towards issuing any digital pound therefore necessarily involves an open, national conversation about the future of our money, in parallel with detailed technical consideration by experts across the UK public authorities, and informed by evolving market trends,” the paper said.
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The consultation paper also includes a section on recommendations for the eventuality that a digital pound is released, such as proposing a limit of between £10,000 ($11,900) and £20,000 ($23,800) on the amount of the digital pound that any U.K. citizen can hold. This would be done in an effort to prevent the digital pound from undermining the banking system.
“A limit on individual holdings would be intended to manage those risks by constraining the degree to which deposits could flow out of the banking system. That is important during the introductory period as we learn about the impact of the digital pound on the economy,” the paper said.
The central bank determined that the range of £10,000 - £20,000 is optimal because it would allow 75% - 95% of UK income earners to hold their salary and pre-existing balances in the digital pound and still leave room for things like overtime payments or other extra income. The bank also sought to set limits that supported the “wide usability of the digital pound.”
The public has been provided a four-month consultation period to submit responses to the consultation paper.
In the event that the central bank decides to move forward with creating a digital pound, the underlying blockchain system is not likely to be completed until at least 2025. The technology working paper released by the BoE in conjunction with the consultation paper reviews the various technical design considerations, including privacy, security and resilience.
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