The Bank of England and HM Treasury have published a response to their 2023 consultation on a UK retail central bank digital currency. The consultation received over 50,000 responses from a range of stakeholders, demonstrating strong public and industry interest in the project. The response sheds further light on the current thinking as to design and implementation but does not confirm whether a digital pound will in fact be launched. The final decision is expected in the next few years following completion of the ongoing design phase and the subsequent build phase.

Consultation response 

In February 2023, the Bank and the Treasury sought feedback on a set of design proposals for a UK retail central bank digital currency (CBDC). They published their response to that consultation in January 2024. 

Addressing public concerns

The paper responds to concerns about a future digital pound such as privacy, security and the risk that it could facilitate “runs” on commercial banks during times of crisis. In order to address these, the Bank and the Treasury stress the following commitments: 

• Parliamentary scrutiny and further consultation – primary legislation will be introduced before any launch of a digital pound. This requires the approval of both Houses of Parliament. There will also be periodic engagement with Parliament through the design phase, as well as further public consultations, before the primary legislation is introduced. 
• Privacy as a core feature – unlike cash transactions, transactions in the digital pound will not be anonymised. This is to address risks of potential misuse (eg, for money laundering or criminal activities). That said, legislation will aim to ensure a digital pound would be subject to stringent standards of privacy and data protection that are at least commensurate with those applicable to current forms of digital money (eg, e-money). Measures will be implemented to ensure the Bank and/or the Government will not have access to personal data through the Bank’s core infrastructure. A working group dedicated to the privacy issues of the digital pound will also be established.
• Control over money – a digital pound would not be programmable by the Bank or the Government. Private sector “payment interface providers” or “PIPs” that provide the digital pound wallets would be able to deliver programming functionality with user consent. This would be subject to a robust regulatory framework. 
• Safeguarding access to cash – the Bank and the Government will preserve access to physical cash. This aligns with other measures such as protections built into the Financial Services and Markets Act 2023 (FSMA 23) and industry initiatives led by LINK to maintain a wide-ranging free-to-use ATM network, acknowledging the diverse needs of the population.

Design of a digital pound

The Bank and the Treasury received responses in relation to the design of a digital pound from an array of stakeholders, including industry bodies, financial services firms, technology firms, consultancies, civil society groups and academics. The Bank and the Treasury have responded as follows: 

• Platform model – the platform model, which centres around a public-private partnership, remains the preferred model for a digital pound. The proposals still contemplate that the Bank would be responsible for issuing, holding and settling the digital pound via a core ledger, while the provision of wallets, payments services and other functionality for end-users is provided by PIPs on a “pass-through” basis. This means that funds would not be held directly by the PIPs and would not form part of their balance sheets. Going forward, the Bank will focus on fleshing out how the platform model will work, including developing a regulatory framework for PIPs and exploring the commercial viability of PIP business models.
• Privacy protections – the Bank is exploring how PIPs could provide tiered access to digital pound wallets so that users are required to provide different degrees of personal information based on the functionality they need. The Bank is also exploring privacy-preserving alias service deploying technologies to ensure that users’ personal data is not visible to the Bank’s core ledger. The Bank will develop a robust legal and regulatory framework in which PIPs would operate and clarify the circumstances where users’ data held by PIPs may be relevant for authorities. This framework will be presented to Parliament for approval. 
• In-scope payments – in line with the original proposals, the digital pound is aimed at retail payments by individuals and corporates (as opposed to wholesale settlement in financial markets). Respondents broadly agreed with the proposal of prioritising the use cases for in-store, online and person-to-person retail payments. The Bank will continue to explore the use cases for cross-border payments and remittances and offline payments. 
• Programmability – in line with the original proposals, neither the Bank nor the Government would programme how or when the digital pound could be spent. The Bank will, however, continue to explore what functionality is desired by users and PIPs (including programmable payments for the purchase of goods, with users’ consent) and the support required from the Bank’s core infrastructure. At this stage, the Bank does not intend to host smart contracts on its core ledger.
• Initial holding limits – the proposals still contemplate an introductory limit of between £10,000 and £20,000 for individuals and the limit for corporates will be explored further in the design phase. 
• Non-UK residents’ access – in line with the original proposals, non-UK residents would be able to access the digital pound on the same basis as UK residents. Compliance with the G7’s 2021 pledge to seek to minimise risks of currency substitution will, however, need to be considered. Anti-money laundering and financial crime concerns will also need to be addressed. 
• No interest – the proposals still contemplate that no interest will be paid on a digital pound, as is the case for cash. 

The Bank and the Treasury are also exploring financial and digital inclusion opportunities that the design of a digital pound could bring, including for those with limited access to card payments.

Interaction with digital payments landscape

In relation to the interaction with the wider payments ecosystem, the Bank and the Treasury have said: 

• Importance of public-private collaboration – the Bank and the Treasury acknowledge that the success of the digital pound (if launched in the future) is premised on the close collaboration between the public and private sectors.
• Private sector alternatives – some commercial banks commented that there are private-sector alternatives to a retail digital pound which could achieve the same outcomes as a retail digital pound. The Bank said it will work with industry to explore the potential of tokenised deposits further. The Bank is also consulting in parallel on a discussion paper on the regulation of systemic stablecoins. 
• Wholesale CBDC – the Bank and the Treasury continue to consider that a renewed RTGS system will facilitate the adoption of new technologies for wholesale settlement more quickly than developing a new wholesale CBDC platform.

What happens next? 

We are currently in Phase 2 of the roadmap originally outlined in the consultation paper. Based on the outcome of Phase 2 (due to end in 2025 / 2026), the Treasury will decide whether to proceed to Phase 3 to begin building prototypes and conducting live pilot tests. If successful, a digital pound will launch by the end of the decade.