What is the digital pound and why was there a public consultation?

Today, commercial banks maintain accounts with the Bank of England, holding digital pounds issued by the Bank as “reserves”. Individuals and businesses can also hold central bank money, but only in the form of physical currency. The digital deposits individuals and firms hold in their bank accounts represent a claim on the private bank managing the account. What the Bank of England and HM Treasury are calling the digital pound would be a new type of money: digital currency issued by the Bank of England for use by households and businesses for everyday payments. This type of money is commonly known as retail central bank digital currency (or retail CBDC).

Globally, most of the world’s central banks – including the Bank of England, the European Central Bank and the US Federal Reserve – are examining the case for introducing retail CBDCs. In the UK, The Bank of England and HM Treasury have concluded a retail CBDC is likely to be needed in the future. They have set out their proposed design - which they are calling the digital pound - and are actively developing a detailed technical, operational and legal blueprint for its implementation. However, a decision on whether or not to introduce the digital pound is yet to be made, and the Bank and HM Treasury ran a public consultation (which closed 29th of June 2023) to gather perspectives on the proposals being taken forward.

Here is the reportLink opens in a new window sent as a response by the Gillmore Centre

Why does it matter and why did the Gillmore Centre respond?

CBDCs represent a potentially significant innovation in the evolution of money and the introduction of a retail CBDC would be a profound decision for the UK.

Moreover, a decision over whether to introduce the digital pound and the details of its design entail complex technical, economic, and societal considerations calling for multidisciplinary input and active public engagement. A transparent and inclusive process involving technical input and public debate is essential.

Payments and money are undergoing significant changes. The balance between public and private money used to make payments is in flux, with consumers and merchants increasingly favouring digital payments over cash – a trend magnified by the pandemic. Meanwhile new forms of privately issued digital money and other innovations in the technology supporting private-digital money are also increasingly coming forward. Public authorities must make critical decisions about how to respond. Does it matter if in future there is no longer a public alternative to private money in the UK? And if it does, how should public money be updated for the future? Addressing these questions requires careful consideration and broad engagement.

To see more about the report please view the Bank of England pageLink opens in a new window.

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