The Bank of England and HM Treasury published the consultation paper for a Digital Pound on Tuesday, 7 February 2023.
The central bank digital currency (CBDC) is envisioned as digital money to work alongside, not replace cash and that households and businesses can use in their everyday life.
Yield App CIO Lucas Kiely says a digital pound could support, rather than pose a threat to crypto.
The UK’s plan to launch a digital pound has entered another phase with the Bank of England and HM Treasury publishing a consultation paper on the project.
BoE’s publication on Tuesday highlighted the digital pound as potentially a “new form of money for households and businesses.” The paper has been presented to parliament by the UK’s Economic Secretary to the Treasury.
While the central bank acknowledges that the launch of a digital pound could take time, it does note that preparatory work in getting the necessary infrastructure in place is justified.
“A digital pound would be a retail central bank digital currency (CBDC) – digital money for use by households and businesses for their everyday payments, issued by the central bank, the Bank of England. The Bank of England (the Bank) and His Majesty’s Treasury (HM Treasury) plan to accelerate our work on the technology and policy architecture for a digital pound,” reads part of the paper released on Tuesday.
CBDCs like digital pound will support, not kill, crypto
The UK’s plans for a central bank digital currency (CBDC) come as the push for creation and deployment of CBDCs continues to gather momentum. It also follows regulatory attention on crypto after a year of a brutal winter and spectacular collapses of several major cryptocurrency projects.
But despite all the up and downs in the sector, the launch of CBDCs like the digital pound does not spell doom for crypto, Lucas Kiely, the CIO of digital wealth platform Yield App told CoinJournal in a commentary.
According to him, CBDCs are inevitable in a world that’s increasingly becoming digitized, with governments keen to benefit from the growing mass adoption of blockchain technology.
“If all payments are made on-chain and governments can track stable digital currency then it solves a number of issues. Tax avoidance becomes harder, welfare payments become more straightforward, and governments can control what those welfare payments are used for.”
Benefits to the public, including things like faster payment systems and accessible credit histories could of course be negated by potential downsides such as the government seizing assets, monitoring private spending, and so forth. But Kiely is optimistic about the positive impact CBDCs could have on the financial sector and crypto.
According to the details in the consultation paper, the digital pound will not replace the UK cash, but be issued and used alongside it.
In particular, the Bank of England sees a digital pound as a project that could help preserve the usefulness of central bank money in a global financial ecosystem that keeps changing. Apart from safeguarding the country’s monetary sovereignty, a digital pound could help bolster competition and innovation within the UK’s payments industry.
“While crypto is making great leaps forward, it is still operating somewhat in the shadows,” the Yield App CIO noted, adding that integration across the broader financial sector could come with even more positives than negatives. He added:
“Rather than pose a threat to the development of crypto, by spurring the involvement of the traditional financial sector in on-chain finance, CBDCs may clear the path to crypto adoption and growth.”
The Bank of England and HM Treasury’s document is seeking public commentary on the project and will form the basis of the next step that includes a pilot phase. Once launched, the central bank plans to limit individual holdings to £10,000- £20,000 to prevent “hoarding” of the CBDC.