Digital pound could be on the way

Almost everything seems to have gone digital in the last few years – and it looks as if the pound could be next.

A consultation on creating a digital pound has just been launched by the Treasury and the Bank of England.

Households and businesses would be able to use it for everyday payments in-store, online and to friends and family, and access it through a digital wallet on their smartphone or a smartcard.

The proposed digital pound would be issued by the Bank of England and would be interchangeable with cash and bank deposits.

Other countries also developing digital currencies

The UK is far from alone in exploring or developing digital currencies. China, for instance, is currently testing a digital yuan in several major cities including Beijing, Shanghai, Xiong’an, Shenzhen, Suzhou and Chengdu.

The European Central Bank (ECB), meanwhile, is working with national central banks across the euro area to look at the possibility of introducing a digital euro.

In the words of the ECB, this would “provide an anchor of stability for our money in the digital age”, as well as “foster competition and efficiency in the European payment sector”.

It therefore makes perfect sense that the UK is looking at taking a similar approach, although no decision on implementing a digital pound is likely to be made for several years.

Indeed, the Bank of England says any decision will “largely be based on future developments in money and payments”, and we’ve all seen how fast the changes have been over the last few years.

So it’s unlikely that any digital pound would be launched until the second half of the current decade at the earliest.

It should also be stressed that a digital pound would complement rather than replace physical cash.

As Chancellor of Exchequer Jeremy Hunt says: “While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new way to pay that’s trusted, accessible and easy to use.

“That’s why we want to investigate what is possible first, whilst always making sure we protect financial stability.”

Would it be safe?

Andrew Bailey, the Governor of the Bank of England, argues that a digital pound would provide “a new way to pay, help businesses, maintain trust in money and better protect financial stability”.

But many will have concerns about several key areas. Data security, for instance, will be a big worry for many people hearing about this proposal for the first time.

The Bank of England and the Treasury insist that a digital pound would be “subject to rigorous standards of privacy and data protection”, with neither the Bank nor the Government having access to people’s personal data, and holders having the “same level of privacy as a bank account”.

The stability of a digital pound may also be a concern to some, given the volatility we’ve seen surrounding crypto assets and stablecoins.

However, the Bank of England and the Treasury point out that a digital pound would be different to crypto assets and stablecoins as it would be issued by the Bank rather than the private sector. Furthermore, the Government is planning to legislate to protect Access to Cash.

“It will have intrinsic value and not be volatile, unlike unbacked crypto assets as there would be a central authority to back it,” the Bank and the Treasury say.

That means a person spending £10 in digital pounds will be spending something that’s worth exactly the same as a £10 banknote.

It will be interesting to see the extent to which the public embrace a digital pound and if it commands the confidence of the British people.

But given the digitisation of so many aspects of our lives, including how we manage our money and make payments, it would be foolish indeed to dismiss the impact, reach and popularity that a digital pound may have.