The digital pound
Summary
The Bank of England (BoE) recently announced that it is looking into the case for a digital pound. If taken forward, this would create a new type of money issued by the bank which people could use to make in-store or online payments.
The generic term for this type of money is a central bank digital currency (CBDC). The digital pound is also sometimes referred to as digital sterling or Britcoin, but the BoE prefers to call the proposed UK CBDC the digital pound. Denominated in sterling, the digital pound would have a stable value in the same way as bank notes. In other words, ten digital pounds would always have an equivalent value to a £10 banknote.
The BOE insists that its intention is not to replace traditional currency and that it understands that being able to use cash remains important for many people. The Bank confirms that it will continue to issue bank notes and coins for as long as people want to keep using them.
The digital pound would not be like a privately issued cryptocurrency or cryptoasset and would be issued exclusively by the BoE and backed by the Government. The Bank has published a Consultation Paper exploring the need for - and proposing a set of design choices for - a digital pound.
The BoE’s view is that a digital pound is likely to be necessary for it to fulfil its mission. People are not using cash as much as they used to, the Bank notes, while digital payments are becoming increasingly common. It also believes that some of the new forms of money on the horizon could pose risks for the UK’s financial stability.
The BoE argues that the money it issues as the UK’s central bank anchors confidence in our monetary system, underpinning the country’s monetary and financial stability. A digital pound could complement the only currently available state-backed alternative, physical currency.
The Bank notes the important role cash plays in enabling people to exchange one type of money for another, for example when they use a cash machine to withdraw money they have in a bank account, in the form of banknotes. The BoE believes that a digital pound could maintain the principle of ‘uniformity’ of money in a world where the majority of payments are digital.
The digital pound could extend the range of options available for making payments, enabling private companies to innovate, make payments more efficient, and give consumers more choice.