The Bank of England (BoE) and HM Treasury published a
response to their joint
consultation paper on 25 January 2024, setting out their assessment of the case for a retail central bank digital currency (CBDC). The consultation paper, which was published last year in February, marked the start of the design phase of the project. The
consultation sought feedback from the public on a set of design proposals for a digital pound and judged it likely that a digital pound would be needed in the future.
In their joint response, the BoE and HM Treasury clarifies that it remains “too early to decide whether to introduce a digital pound”, but they judge that further preparatory work is justified so that they can respond to developments in the payments space
and “reduce materially the lead time if there is a future decision to introduce a digital pound”. It is understood that upon completion of the design phase, which is expected to be next year, the Bank and the Government will take a more concrete decision as
to whether to proceed to build a digital pound or not. The joint response clarifies that “if the decision was taken to do so, a digital pound would only be introduced once both Houses of Parliament had passed the relevant legislation”.
The BoE and HM Treasury also clarified their positions in a separate
response to the
Technology Working Paper of 25 January 2024, which set out a high-level approach to technology design considerations and proposed an illustrative conceptual technology model for a digital pound. The BoE and HM Treasury set out a set of design principles,
explaining that the design proposition in the Consultation Paper “remains the right basis” for further exploration of a digital pound during the design phase. However, they also acknowledge that “further work is required to flesh out a detailed proposition”.
Although the consultation paper sought to provide certain assurances that measures would be put in place to ensure the public would have confidence in using a digital pound, it appears that respondents’ concerns remain with respect to the BoE, as operator
of the digital pound infrastructure, having access to personal data. In the joint response, the BoE and HM Treasury reiterate that private-sector digital pound wallet providers, Payment Interface Providers (PIPs), “would anonymise personal data before transactions
are processed and settled by the Bank”. They also repeat that they would refrain from pursuing “government or central bank-initiated programmable functions”. Going one step further, they set out a range of further measures that would govern a digital pound,
if the decision were made to introduce it. In a nutshell, the core design feature of a digital pound would be privacy.
Accordingly, HM Treasury and the BoE express four legislative and policy commitments that the BoE and the Government would not have access to users’ personal data – and legislation introduced by the Government for a digital pound would guarantee users’ privacy.
In addition, the BoE has committed to exploring technological options that would prevent it from accessing any personal data through its core infrastructure. Also, the BoE and the Government would not program a digital pound – and legislation introduced by
the Government for a digital pound would guarantee this. Finally, the Government has legislated to safeguard access to cash, ensuring that it would remain available even if a digital pound were launched.
The BoE and HM Treasury’s joint response sets out the steps that will follow during the design phase. Before any launch of a digital pound, the Government has committed to introducing primary legislation, which is expected to guarantee users’ privacy by
preventing the BoE from accessing any personal data through the Bank’s core infrastructure. This means that a digital pound would only be launched once both Houses of Parliament had passed the relevant legislation. So it is understood that, as the design phase
progresses, there would be further public consultation if the Government decides to introduce primary legislation in the future.
Responding to the concerns about the implications of a digital pound for access to cash, the BoE and HM Treasury also reminded that the Government has legislated to safeguard access to cash, explaining that cash would remain available even if a digital pound
were launched. The clear message is that a digital pound would complement, not replace, cash. Providing reasurrances on that front, they explain that the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR) will also take part in safeguarding
access to cash. Indeed, the Government legislated in 2023 to provide the FCA with powers to protect access to cash across the UK, and the regulator is already
consulting on how it plans to protect access to cash.
While no decision has yet been taken on whether to introduce a digital pound, the BoE and HM Treasury explain that the design phase comprises four major “workstreams” including the blueprint for a digital pound, proofs of concept, engagement with the stakeholders
and further costs and benefit analysis. This suggests that further work in this space will focus on experimentation and proofs of concept with the private sector, developing a blueprint for a digital pound based on a set of design principles, engaging with
all stakeholders on the future of money, and conducting an assessment of the costs and benefits of the digital pound.