On Monday, officials disclosed that Britain is moving forward with work on a potential digital pound, which could come into use in the second half of this decade.
This would also help in preventing the electronic cash system from becoming fragmented, as it has already become dominated by banking and tech giants.
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CBDC
The finance ministry and the British central bank said that they would like to need a central bank digital currency (CBDC) later in the decade due to which they introduced a new consultation for its design.
Jeremy Hunt, the British Finance Minister, said that even though cash is not going anywhere, having a digital pound that is backed and issued by the central bank could be a new method of payment.
He said that it would be easy to use, accessible as well as trusted. Therefore, they wanted to investigate the possibility of introducing one and also ensure that they can maintain financial stability simultaneously.
The Governor of the Bank of England (BoE), Andrew Bailey, said that they needed to consider the digital pound’s implications, which also include privacy considerations.
He said that the consultation they were launching and the additional work they would do would serve as the foundation for what could be a big decision for the country in terms of how money is used.
The digital pound
It was in 2021 when Prime Minister Rishi Sunak, who was the finance minister back then, put forward the idea of the Bank of England (BoE) looking into the possibility of a CBDC.
A total of 11 countries have also launched their respective CBDCs and the European Central Bank (ECB) and the US Federal Reserve are also exploring the idea of doing so.
As compared to crypto assets, the central bank would issue the digital pound, which means the private sector will not play a role, and it would come with a fixed value.
The proposals
Under the proposals put forward in Britain, individuals would not have direct accounts with the central bank. Instead, they would open accounts with private digital wallet providers.
These would offer people the digital pound and use public infrastructure to do so. A lot of services that the digital pound would offer are already available to consumers.
But, officials said that it would help in avoiding the risk of non-interoperable and competing systems that are being operated by banks and tech giants and would also promote innovation.
The concept of central bank digital currencies (CBDCs) had gained popularity back in 2019 when Facebook proposed a crypto-asset named Libra.
The company intended to peg the token’s value to a basket of currencies, but the project was eventually shut down.
The BIS’ new head of innovation recently said that while CBDCs are making progress, they would have to deal with geopolitical limits.
The largest cross-border trial of a CBDC that has happened to date has been conducted by China. Initially, Britain intends to impose a limit on how much CBDC can be held by businesses and individuals.
