Exploring the Implications of Introducing a Digital Pound CBDC in the UK

The UK is intensifying its efforts to understand the potential outcomes of implementing a Central Bank Digital Currency (CBDC) for the Pound. In response to an order from the UK Parliamentary Committee and the House of Commons, the Bank of England and the UK Treasury have conducted a thorough analysis of the potential benefits associated with launching this digital currency. This initiative aims to prevent unnecessary expenditure on CBDC pilot programs and trials.

The Bank of England has initiated a comprehensive evaluation of the CBDC, collaborating with MIT to assess the advantages and disadvantages of adopting CBDCs. The focus is on examining the benefits related to issuance, distribution, and privacy of incorporating the digital Pound into the existing financial system.

The House of Commons Treasury Committee outlined in an official post that a wholesale CBDC could offer potential benefits for wholesale payments, including reduced settlement times and counterparty risks. The proposed design for the digital pound involves a ‘platform model,’ where the Bank of England provides core public infrastructure and issues digital pounds, recorded in a ‘core ledger.’

CBDCs, representing fiat currencies on blockchain networks, could serve as a mode of digital payments, aligning with environmental goals and reducing reliance on paper currency. The transactional history recorded for CBDCs would be immutable, enhancing transparency in record-keeping.

According to the Bank of England, CBDCs could lower payment costs for smaller merchants, potentially leading to market concentration, supporting financial inclusion, and improving both domestic and cross-border payments resilience.

As of now, neither the Bank of England nor the UK Treasury has provided a concrete timeline for the readiness of the digital pound. The assessment report also highlights that the US is not urgently moving towards establishing its own CBDC.

Treasury chief Jeremy Hunt emphasized, “While cash is here to stay, a digital pound issued and backed by the Bank of England could offer a new, trusted, accessible, and easy-to-use payment method. We want to explore the possibilities while ensuring the protection of financial stability.”