What is the Digital Pound?
The digital pound would be a new type of money issued by the Bank of England alongside cash. As our world becomes more digital, methods of payment are evolving, and the Bank of England is looking into creating an electronic version of cash.
Why is the Bank of England Looking into the Digital Pound?
In today’s increasingly digital world, we’re not using cash as much as we used to. To keep up with changing times, the Bank of England and HM Treasury are exploring the idea of a digital pound. This would be an electronic version of cash issued by the Bank of England and accessed via digital wallets provided by companies.
The Case for a Digital Pound
Money sits at the heart of the economy and everyday lives. Today, we can pay in many different ways, including using banknotes issued by the Bank of England or electronically from your bank account. Whichever way you choose to pay, you can always trust the value of the money you’re spending or receiving.
A digital pound would be like a digital form of cash – a banknote for the digital era. Like banknotes, it would be issued directly by the Bank of England. You could hold your digital pounds in a digital wallet and spend them in shops or online. A digital pound would be denominated in sterling, and its value would be stable, just like banknotes. £10 in digital pounds would always have the same value as a £10 banknote.
Complementing, Not Replacing Cash
If introduced , the digital pound would not replace cash. The Bank of England know being able to use cash is important for many people. That’s why they will continue to issue it for as long as people want to keep using it. You would simply have even more choice when you make payments.
Not a Cryptocurrency
The digital pound would not be a cryptocurrency or cryptoasset. Unlike cryptocurrencies, which are issued privately, a digital pound would be issued by the Bank of England and backed by the Government. Just like the money you use today, your trust in a digital pound would be essential. Any future laws on a digital pound would guarantee users’ privacy and also ensure that neither the Bank of England nor the Government could control how you spend your money. It would be your choice whether to use a digital pound or not.
Consultation and Feedback
In early 2023, the Bank of England published a Consultation Paper, which explores the need for a digital pound and proposes a set of design choices for it. They received over 50,000 responses and were grateful to all those who provided their thoughts. They published a response to this consultation in January 2024. You can find out more about the latest publications on there news page.
The Next Steps for a Digital Pound
The Bank of England haven’t made a decision on whether they will introduce a digital pound. The earliest they would issue a digital pound would be the second half of this decade. They are now in a design phase which will look at the technology and policy requirements for a digital pound over the next 2 to 3 years. In this phase, they will test how it could work in the real world, bringing to life innovative ways to use it so you can see how it might be useful and relevant to you. They will also carry out detailed assessments to determine exactly how a digital pound would operate.
At the end of this phase, they will have enough information to make a decision on whether to move into a build phase. Parliament will also have a say before any digital pound is launched, and further public consultation will be held to ensure everybody has the opportunity to make their views heard.
Your Questions Answered
Why is the Bank of England looking into the digital pound? They are looking into the digital pound because the way people pay is changing. We aren’t using cash as much as we used to, and digital payments are becoming more and more common. On top of that, new forms of money are emerging and some of these could pose risks to financial stability. The digital pound would be like an electronic version of the banknotes issued by the Bank of England. The digital pound could help us maintain trust in money and protect our financial system, while also improving payments by increasing efficiency and enabling innovation.
Will the Bank of England introduce the digital pound? They haven’t made a decision whether to introduce the digital pound. They are still exploring the possibilities. But if they do decide to issue a digital pound, it won’t be for a few years.
Would the digital pound replace physical money? If they introduced the digital pound, it would not replace cash. Instead, they would like it to work alongside cash as we know that people may like to have the option to use both.
Would I have a digital pound account at the Bank of England? Not in a traditional sense. So you would not be able to open an account with the Bank of England. The way you would access digital pounds would be through a digital wallet provided by a private company. The reason they would do it this way is that they think private companies are much better placed to provide innovative products and services to the public.
What would I be able to use my digital pounds for? If they introduced the digital pound, you would be able to do the same things you can do with your money today, such as paying family or friends or buying goods in shops or online. But new technologies are emerging, which they could incorporate into the design of the digital pound. This would allow wallet providers, from whom you would access the digital pounds, to invent and design tools to help you use your money in new ways. These innovations could change the way people pay and could make payments faster and less expensive. Wallets would be designed by private companies like banks or payment firms and by new firms appearing over time. But digital pounds would be directly issued by the Bank of England, just like banknotes. That means you would have all the same safety and security that you have with our money today.
Would digital pounds be used to monitor what I do with my money? If you used digital pounds, the Bank of England and the government would not collect any of your personal data and wouldn’t be able to see how you spent your money. You would access the digital pound through a virtual wallet and you would have to share some personal data with your wallet provider. This is because you would have a commercial relationship with your provider and they would require some form of ID to prevent financial crime or fraud. Your privacy would still be protected by data privacy regulations and your personal data would not be shared with the Bank or the government.
Would the Bank of England restrict what I use my digital pounds for? Neither the Bank of England nor the government would be able to program your digital pounds or restrict how you spent them. However, you would have the ability to program your own payments, if you wanted to. Today, this would allow you to make automated payments such as paying your rent or mortgage on a set day. But in the future, this feature could also lead to exciting innovations in payments.
Would the digital pound be safe and secure? If they introduced the digital pound, they would ensure it was protected to the very highest standards from things like cyber attacks or power cuts. Fraud is also a risk people face today when making payments. The authorities and firms providing digital-pound services would have a responsibility to ensure the digital pound helped prevent fraud, as with banknotes. Consumers would enjoy the same protections they have today.
Would I earn interest on my digital pounds? You wouldn’t earn any interest on your digital pounds, just as you wouldn’t earn any interest on your physical cash. A digital pound is designed for day-to-day spending and not for savings.
Would the digital pound be just another cryptocurrency? The digital pound would not be a cryptoasset. You may have heard of cryptoassets such as Bitcoin and Ether. These are issued privately, whereas the digital pound would be issued and backed by the Bank of England. The value of cryptoassets can also be very volatile, which means it moves up and down very quickly at short notice, which means these assets are not very useful for making payments. The digital pound, however, would have a stable value over time. That means that £10 of a digital pound would be the same as a £10 banknote.
Would the digital pound be bad for the environment? A digital pound wouldn’t be bad for the environment. It would be highly efficient and not use the same energy-intensive methods that you see with the likes of Bitcoin. A digital pound would be in line with the Bank’s efforts to reduce its carbon footprint and meet its environmental targets.
Would the digital pound only be for people who are comfortable with technology? If they introduced a digital pound, they would like everybody to be able to use it, not just those people who are comfortable with technology. Most people would access their digital pounds through a virtual wallet on their smartphone. But they are also looking at other ways too, for example, a physical card like a debit card.
Why do we need a limit for how many digital pounds I can hold? If they introduced a digital pound, they would need to set a limit for how much people could hold. This would give them time to understand its possible impact on the financial system and help to ensure it wouldn’t cause disruption. Once they better understand this and how people use it, they would review this limit. They have not yet decided what the limit would be, but it would be high enough for day-to-day spending. So you would receive all sorts of payments, such as your salary, without worrying.
Will the Government or the Bank be able to control or monitor my digital pounds? They know you may be concerned about how private a digital pound would be. And they know some of you worry that if there was a digital pound, the Government or the Bank of England might try to control how you spend your money. To address those concerns, the Government has said it would introduce new laws to make sure your privacy and control would be guaranteed. They are also working on ways to make sure safeguards for your privacy and control are built into the technology of the digital pound, if it goes ahead.
Will there be a vote on a digital pound, and will I get a say? There would be a vote in Parliament before any digital pound is launched in the UK. That means your local MP would have a vote on the issue. We started a public conversation on the digital pound in February 2023 by holding an extensive consultation. Tens of thousands of people responded to that, helping us understand how to design a better digital pound for you. And there will be more chances to have your say.