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‘Profound’ digital pound decision faces policymakers

The UK Treasury has launched a consultation paper to help lay the foundations for a ‘profound decision’ over a digital currency

The UK Treasury has launched a consultation on its plans to launch a digital currency, which could lead to a government-backed digital pound.

The digital pound consultation is to help inform the government – it does not mean a decision has been made to introduce a digital currency.

Bank of England governor Andrew Bailey said: “As the world around us and the way we pay for things becomes more digitalised, the case for a digital pound in the future continues to grow. 

“A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability.”

He said the consultation would help the government make “a profound decision for the country on the way we use money”.

A central bank-backed digital currency would always retain its value, unlike volatile cryptocurrencies, and would replicate the use of cash.

Chancellor of the exchequer Jeremy Hunt said cash was here to stay, but added: “A digital pound issued and backed by the Bank of England could be a new way to pay that is trusted, accessible and easy to use. That is why we want to investigate what is possible first, whilst always making sure we protect financial stability.”

Last month, the Treasury posted its search for a head of central bank digital currency (CBDC) on LinkedIn, with the successful candidate expected to manage multiple teams, including financial services, financial stability, economics and spending teams.

According to the job listing, candidates would require experience of “working in financial services or of public policymaking in a technical subject or highly regulated area”.

Regulating new forms of payment

Central banks across the world are having to devise policies on the use of digital currencies, as consumers move away from cash as their main payment method. The pandemic accelerated the move to digital payments, which do not require as much physical contact and therefore reduce potential Covid-19 transmission.

Banks will need to create regulations to address a number of issues to ensure that society benefits from new ways of making payments. A Bank of England discussion paper, published in June 2021, stated that before new forms of digital money could be used widely, there were “issues around the safety of money and macroeconomic stability that need to be addressed”.

In Sweden, the central bank, Riksbank, is well into its second year of testing a new digital currency (e-krona), but so far, no firm decision has been made by the government to adopt it.

A year ago, Riksbank ended the second phase of its pilot project, which set out to investigate and test the technical solution as well as potential legal framework around the e-krona. This phase focused on integration with existing point-of-sale terminals and with the internal systems of commercial banks. Other areas of focus during phase two were offline functionality and improved performance and scalability.

With support from Swedish bank Handelsbanken and IT services company Tietoevry, the project looked at how banks and other payment service providers could be integrated into an e-krona network.

A Riksbank statement said: “The tests have shown that it is possible to integrate a potential e-krona into the internal systems the banks have today, and this would make it possible for their customers to exchange money in their bank account for e-krona, and vice versa.”

Read more about digital currencies

  • The UK financial services regulator is calling for feedback from organisations, including tech firms, on the use of cryptocurrency.
  • Sweden’s central bank, Riksbank, has extended a project to build an understanding of how a digital currency might work, including what technology might underpin it.
  • Nordic developments within the digital currency domain have produced a landmark cross-border technology hub collaboration between Scandinavia’s four central banks and the Bank for International Settlements (BIS).

Read more on IT for financial services

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