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Bank of England and UK Treasury explore 'digital pound'

Chancellor of the Exchequer, Rishi Sunak during a press conference in 10 Downing Street, London, following the 2021 Budget in the House of Commons. Picture date: Wednesday March 3, 2021.
Chancellor of the Exchequer, Rishi Sunak during a press conference in 10 Downing Street. Photo: PA

Britain is looking at whether to launch a "digital pound".

The Bank of England (BOE) and the UK Treasury are exploring a potential national digital currency, amid a groundswell of interest in digital markets.

The pair announced the creation of a new taskforce on Monday that will coordinate work on a possible "Central Bank Digital Currency (CBDC)."

The Bank of England said any CBDC would be a new form of digital money that could be used by both households and businesses. It would exist alongside cash and bank deposits, rather than replacing them.

The government and the BOE have not yet made a decision on whether to introduce a CBDC in the UK and will engage widely with stakeholders to discuss the benefits, risks and practicalities of doing so, the Bank of England said.

The announcement was timed to coincide with the start of UK fintech week, where UK chancellor Rishi Sunak gave a keynote address on Monday.

“Our vision is for a more open, greener, and more technologically advanced financial services sector," he said. "The UK is already known for being at the forefront of innovation, but we need to go further.

"The steps I’ve outlined today, to boost growing fintechs, push the boundaries of digital finance and make our financial markets more efficient, will propel us forward. And if we can capture the extraordinary potential of technology, we’ll cement the UK’s position as the world’s pre-eminent financial centre."

London, UK
The Bank of England and Treasury announced the creation of a new taskforce on Monday morning, to coordinate what they are calling the "Central Bank Digital Currency (CBDC)."

The CBDC taskforce will look at use cases, opportunities and risks of a potential "digital pound". It will look at design features and monitor international developments in the field.

The taskforce will be co-chaired by Jon Cunliffe, the deputy governor for financial stability at the BoE and Katharine Braddick, the Treasury's director general of financial services.

Two new forums will be established as part of the exploratory work: the CBDC engagement forum and the CBDC technology forum. They will engage with technical experts, financial institutions, merchants, businesses, civil society groups, and consumers.

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The chancellor has gone to great lengths to make the UK an attractive place for fintechs following the UK's departure from the European Union, including shaking up listing rules to lure tech companies to the London stock market.

Any rollout of a UK digital currency won't come without hurdles — sceptical market-watchers have previously raised concerns about security and the potential environmental impact, while economists have questions about its impact on monetary policy transmission.

The exploratory work comes amid a flurry of interest internationally. Dutch bank ING said discussions of national digital currencies began with the emergence of bitcoin but were "mostly academic" until Facebook's decision to launch its own digital currency in 2019.

"All of a sudden, the prospect of a private stablecoin crowding out fiat currencies and pushing central banks into irrelevance turned into a real possibility, given Facebook’s vast global user base," Teunis Brosens, ING's head economist for digital finance and regulation, wrote in a research note.

China is close to becoming the first major economy to launch a digital currency. Pilots began regionally last year and there are rumours of a national launch in 2022.

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