The digital pound: A new form of money for households and businesses?

In view of recent technological developments and the concurrent trend towards digitization, the HM Treasury and the Bank of England (BoE) have launched a joint consultation on a proposed new central bank digital currency (CBDC) which would be issued by the Bank of England. The consultation is high level in nature in that it sets out a proposed framework for such CBDC and seeks feedback on some very general issues as regards the introduction of such central bank digital pound.
#### Proposed features and framework for a pound sterling CBDC
– The CBDC in pound sterling would be issued by the Bank of England (vs. private sector digital currencies) and complement the current cash supply of the pound sterling. As such, it would be interchangeable with any cash or bank deposits in pound sterling 1:1. Therefore, it would – so to speak – replicate the pound sterling in digital form and would not be subject to any volatility in contrast to private digital currencies. The CBDC could be used in day-to-day business and private transactions, online and in stores.
– The CBDC would be implemented via a so-called platform model whereby the BoE would provide the central core ledger – „a fast, resilient, secure technology platform“ – which could be accessed by licensed intermediaries only. The central core ledger would only provide basic functionality with key services being provided to retail customers or businesses by payment interface providers (PIPs) or external service interface providers (ESIPs). It shall also be noted in this context, that the HM Treasury and the Bank propose to only process anonymized, aggregated transaction data in the central core ledger and not maintain any personal (user) data. The platform model is illustrated in the following graphic.
Fig. 1: Overview of the functioning of a CBDC – the platform model

– The new digital pound sterling would be subject to stringent data and privacy protection standards similar to the one known from bank accounts. To prevent financial fraud and ensure trust in the new payment system, users of the CDBC would have to register and verify their identity. This is in sharp contrast to the functioning of private digital currencies whose users are typically entirely anonymous.
– Users would be assigned so-called digital wallets which would basically function like „real wallets“ and permit the receipt or transfer of digital pounds. Initially, so the two government agencies, such wallets should be limited to anywhere between £10,000 and £20,000. A proposed lower limit is also discussed in the paper. In this context, the regulators also seek feedback on a possible limit for companies, as the above noted limit for private users is likely to be insufficient for corporate clients.
– Finally, the CDBC could be used by UK residents and foreign residents alike, provided of course that they register via above noted intermediaries. To ensure inclusion into digitization, the entire CDBC framework would rely and be based on the current payment system infrastructure in UK, meaning, for instance, that users could directly transfer payments via ATMs or via any payment service (provider).
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Concurrently, the Bank of England has released a new working paper entitled The digital pound:
Technology Working Paper. The paper sets out and seeks feedback on technical design issues of the proposed CBDC. Specifically, it „sets out an illustrative conceptual model, which is based on the platform model of CBDC. It outlines how different components of the conceptual model might operate and how ecosystem participants might interact with these components“.
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Comments on the Consultation Paper and / or the Technology Working Paper may be submitted to either of the two government agencies by email at:
Digitalpoundconsultation2023@bankofengland.co.uk or CBDC@HMTreasury.gov.uk or via a corresponding web form.