• The Bank of England (BoE) and the H.M. Treasury have released a consultation paper outlining the introduction of a central bank digital currency (CBDC), also known as “the digital pound”.
• The digital pound would be a new form of sterling, similar to a digital banknote, issued by the Bank of England and used for everyday payments needs.
• While the project is still in its planning phase, the BoE has suggested limiting individuals’ amount of digital pounds held to between £10,000-£20,000.
Introduction of Digital Pound
The United Kingdom (U.K.) has stepped up its efforts to introduce a central bank digital currency (CBDC). On Tuesday, the Bank of England (BoE) and H.M. Treasury released a consultation paper in which it announced the launch of its digital pound CBDC project. The document outlines that the project will be backed and issued by the BoE and describes the digital pound as a „new form of digital money for use by households and businesses.“
Purpose & Features
The purpose behind this initiative is to ensure that central bank money remains available and useful in an ever more digitized economy; if introduced, it would exist alongside cash and bank deposits but with several differences such as being used in-store, online or for making payments to family and friends.
Limitations on Usage
Interestingly, the BoE suggests limiting the amount of digital pounds citizens should hold: „We judge that a limit of between £10,000 and £20,000 per individual is likely to strike an appropriate balance between hanging risks and supporting wide usability of the digital pound.“
The BoE notes that private sector innovation may be one of many benefits associated with introducing a more diverse payment network – with potential decisions to issue such type payments beings made upon observing how current payment landscapes evolve both domestically and abroad in coming years.
While the issuance of this consultation paper marks an important step forward towards making CBDCs become reality, formally introducing them may still take years away from now – requiring further research into its potential impacts before being put into circulation within U.K.’s marketplaces/economy as whole.