The digital pound: a new form of money for households and businesses?
In this speech, Sir Jon Cunliffe, Bank of England´s Deputy Governor for Financial Stability says it is likely that a retail, general purpose digital central currency -“a digital pound”- will be needed by the end of this decade. He discusses why this is the case, how the model could look like and how the digital pound may sit within the digital payments landscape, although he points out that it is still too early to take the decision on its introduction. The public consultation is open for comments until 7 June 2023 and after that further work, especially detailed technical exploration and development, will be necessary to assess the feasibility and cost of the digital pound. Final decision on the launch of a digital pound could be taken at the earliest in 2025 and if that were the case, the introduction would be during the second part of the decade.
Main takeaways from the speech:
- Public platform and partnership with the private sector: The Bank of England would provide the central public infrastructure which would provide the minimum necessary functionality. Regulated private firms could then use this infrastructure to design innovative, user-friendly services and handle all customer-facing interactions.
- Data protection and privacy: A digital pound would be subject to rigorous standards of privacy and data protection. Like current digital payments and bank accounts, the digital pound would not be anonymous because the ability to identify and verify users is necessary to prevent financial crime.
- Risk Free: It would replicate the role of cash in a digital world. Unlike cryptoassets and stablecoins, the digital pound would be issued by the Bank of England and not the private sector.
- User experience: Digital wallets could allow people to seamlessly manage their balance and make payments. Wallets would be used in the same way as current contactless payments and use the same merchant infrastructure. Payments would be speedy and confirmed immediately.
- Holding limit: A limit on individuals’ holdings would apply at least in the introductory phase. This would strike a balance between both encouraging use and managing risks, such as the potential for large and rapid outflows from banking deposits into digital pounds.