Bank of England and U.K. Treasury Release Consultation Paper for Retail CBDC Digital Pound

On Tuesday, February 7, the Bank of England and the U.K Treasury together released a consultation paper over the launch of a proposed central bank digital currency (CBDC) aka Digital Pound.

Nicknamed “Bitcoin” the two players have also released technical and economic design considerations for the CBDC. Interestingly the two players expect a “mixed payments economy” in the future and believe that CBDCs like Digital Pound and privately-issued stablecoins can co-exist together.

The 166-page consultation paper notes: “In much the same way that cash exists alongside private money, the digital pound does not need to be a dominant form of money in order to meet its public policy objectives. The digital pound could exist alongside other forms of money, including stablecoins.”

Both - the Bank of England and the U.K. Treasury - expect to launch the Digital Pound by 2025 at the earliest, however, they are still not completely sure of the launch.

The paper notes that the primary motivation behind launching a Digital Pound is the BoE’s bank money remains “an anchor for confidence and safety” in Britain’s monetary system. Another major motive is to “promote innovation, choice, and efficiency in domestic payments.”

A Digital Pound CBDC would help prevent the fragmentation of an electronic cash system that’s largely dominated by tech and other banking giants. In a statement, the Bank of England governor Andrew Bailey said: “There are a number of implications which our technical work will need to carefully consider. This consultation and the further work the bank will now do will be the foundation for what would be a profound decision for the country on the way we use money.”

With this CBDC, the Bank of England seeks to test waters without disturbing the financial stability of the company. Furthermore, the Bank of England is mulling for a public-private partnership to push further the adoption of e-GBP in the retail ecosystem. “For the digital pound to play the role that cash plays in anchoring the monetary system, it needs to be usable and sufficiently adopted by households and businesses,” noted BoE.

The consultation paper notes that BoE would enable certain programmability features such as smart contracts and atomic swaps. In addition to seeking infrastructure support from its private partners, BoE is also considering to impose individual limits between 10,000 to 20,000 British pounds.

“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,” it noted.

Furthermore, the British central bank will ensure the implementation of rigorous standards for privacy and data protection.