Understanding the digital pound

The digital pound is a proposed central bank digital currency (CBDC) being explored by the Bank of England. It aims to coexist alongside physical cash and serve as a government-backed, stable digital currency accessible to everyone for day-to-day spending. Issued by the Bank of England and denominated in sterling, it ensures reliability and stability.

The purpose of the CBDC is to enhance payment options and address the changing landscape of digital transactions. Users can access their digital pound balance, make purchases, pay bills, transfer funds, and more through a digital wallet on smartphones or other devices.

It promotes monetary stability and financial inclusion by offering a reliable, government-backed means of exchange.

Currently, the Bank of England is in a consultation phase, gathering input from individuals, businesses, and organizations to shape the design and policies of the digital currency. Following the consultation, a two to three-year design phase will explore technological and policy requirements. If outcomes are favourable, a build phase may lead to issuance in the decade's second half. The Bank of England aims to engage with various stakeholders to understand the potential impact and ensure diverse perspectives are considered in shaping the future of the digital pound.

A new era of digital money

The digital currency, if introduced, would be a new type of money issued by the Bank of England. It would be a digital equivalent to physical banknotes, denominated in sterling and maintaining a stable value. This digital currency would be accessible to everyone for day-to-day spending, both in-store and online.

Furthermore, the digital pound has the potential to enhance financial inclusion by offering a user-friendly and widely accessible digital currency, reaching unbanked and underbanked populations who may face challenges accessing traditional banking services.

The UK CBDC could facilitate faster and more cost-effective cross-border transactions, boosting trade and economic growth.

Distinguishing characteristics

As a CBDC, the proposed digital currency by the Bank of England possesses several unique features that differentiate it from traditional cryptocurrencies and other forms of digital money:

• Government support: This digital currency would be issued by the Bank of England and backed by the government, ensuring its reliability and stability in contrast to privately issued cryptocurrencies.

• Stability in value: The value of this digital currency would be denominated in sterling, which means it would maintain a stable value relative to the British pound and not experience the extreme volatility often seen with cryptocurrencies.

• Coexistence with physical currency: Unlike some digital currencies aiming to replace cash entirely, this CBDC is designed to coexist alongside physical banknotes, providing an additional payment option rather than replacing existing ones.

• Wide accessibility: This digital currency would be accessible to everyone for day-to-day spending, both in-store and online, ensuring that it serves as a viable payment option for the general public.

• Improved financial inclusion: By offering a digital currency that is widely accessible and easy to use, this CBDC could potentially enhance financial inclusion, reaching unbanked and underbanked populations.

• Monetary stability: As a CBDC, this digital currency would maintain monetary stability, as the Bank of England would directly influence its issuance and circulation.

These unique features make the proposed CBDC a groundbreaking development in digital currencies, providing individuals and businesses with a secure, convenient, and government-backed digital payment option.

Conclusion

The digital pound represents an exciting development in the evolution of money. As technology continues to transform payment systems and digital transactions become increasingly prevalent, a central bank digital currency like the one proposed holds the potential to provide a secure, convenient, and government-backed digital payment solution for individuals and businesses.

The ongoing consultation process ensures that public input is considered in shaping the design and policies of this digital alternative.