Foreword

Money is central to our daily lives and is at the heart of how the economy works.

Last year, the Bank of England and HM Treasury took a major step in the national conversation on the future of our money, with a Consultation Paper on a proposal for a UK retail central bank digital currency (CBDC). This would be a new form of digital money for use by households and businesses in the UK, known as the digital pound and issued by the Bank of England.

The UK’s financial services sector is world-leading, open, and technologically advanced. Our work on a digital pound is just one part of the Government and Bank of England’s efforts to ensure that the UK remains at the forefront of innovation in money, payments and digital finance. The process of developing the design for a digital pound over the coming years will present enduring benefits for the UK’s digital economy, fostering knowledge-sharing and technical collaboration between the public and private sectors. These efforts are valuable, regardless of whether a decision is ultimately taken to introduce a digital pound.

Today we can pay for transactions and pay each other in many different ways, and that choice is important. People choose what is best for them in that moment. A digital pound issued by the Bank of England would not replace those existing forms of money – cash and the money in our bank accounts – and the means of payments we already use, like debit and credit cards. Indeed, last year the Government enacted legislation to safeguard access to cash across the UK. That said, a digital pound would provide an additional choice for making payments in a way that is safe and secure and fit for the future, whether in person or online or to each other. And building the platform on which a digital pound would operate could unlock opportunities for companies, big and small, to develop innovative ways to pay, ensuring the public has access to leading technologies that make our lives easier. This could make day-to-day payments more convenient, while reducing costs for the businesses who accept them.

The Consultation Paper received over 50,000 responses from members of the public, businesses, civil society and academia. The volume of responses is evidence of how important questions on the future of our money are for individuals and industry alike. We are grateful to everyone who took the time to consider and submit a response. Some of those responses were about our proposed design for a digital pound, and how a digital pound would fit alongside existing and emerging forms of money and payments in the economy. Others raised concerns about important issues such as the potential impact on privacy, access to cash and freedom of choice. The feedback clearly illustrated that, just as with other forms of money, ensuring trust in a digital pound issued by the central bank would be essential.

This publication sets out how that feedback will guide the Government and the Bank of England’s priorities during the design phase of our work on the digital pound, and the further steps we are taking to address the concerns that have been raised. The Government has committed to introducing primary legislation with a vote in both Houses of Parliament before any launch of the digital pound, ensuring full Parliamentary scrutiny. This legislation would guarantee both users’ privacy and that neither the Bank of England nor the Government would control how you spend your money.

We are also strongly committed to maintaining an open and collaborative approach throughout this design phase. The consultation was not the only chance to have your say. Our organisations will be increasing structured engagement with experts from industry, civil society, academics and technical specialists, including open requests for input on a range of important topics, in order to inform what the best design for a digital pound would look like. The Bank of England will undertake experiments with companies to test how a digital pound could work in the real world. We are also committing to further public consultation prior to legislation being introduced.

This publication marks the latest stage in our national conversation on the future of our money – and it is far from the last. At this exciting time of innovation in money and payments, the Bank of England and HM Treasury look forward to working with the private sector, civil society, academia and the public to develop our proposals for a digital pound issued by the Bank of England, so that we stand ready should a decision to build it be taken in the future.

Bim Afolami MP, Economic Secretary to the Treasury

Sarah Breeden, Deputy Governor for Financial Stability, Bank of England

Summary

In February 2023, the Bank of England (the Bank) and His Majesty’s Treasury (HM Treasury) published a Consultation Paper to seek feedback from the public on the design of a ‘digital pound’, a potential UK central bank digital currency (CBDC) for use by households and businesses for their everyday payment needs. The Consultation Paper set out that the Bank and HM Treasury judged it likely that a digital pound would be needed in the future, and so further preparatory work was justified.

The Bank and HM Treasury received over 50,000 responses to the consultation, demonstrating widespread interest in a digital pound and engagement with the proposals. Many respondents to the Consultation Paper raised concerns about the implications of such a digital pound for access to cash, users’ privacy, and control of their money. Recognising the critical importance of building the public’s trust in a digital pound, this Consultation Response seeks to assure respondents of the steps the Bank and HM Treasury are taking to put in place safeguards in the design of a digital pound before any decision is made.

Since the Consultation Paper was published, the Government has committed to introducing primary legislation before launching such a digital pound, ensuring Parliamentary input into any decision to proceed. Reflecting respondents’ feedback to the Consultation Paper, this response makes clear that legislation introduced by the Government for a digital pound would need to provide protections to guarantee users’ privacy and control of their money. The Bank, the Government, the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR) will continue to safeguard access to cash, given the vital role it plays for individuals and in communities.

Respondents will have further opportunities to share their thoughts on a digital pound. In particular, there would be further public consultation prior to the introduction of primary legislation by the Government. And future work and decisions on a digital pound will continue to be informed by dialogue with the public, business, civil society, Parliamentarians, and experts, as the Bank and HM Treasury continue to develop its design. The Consultation Paper was a major milestone in the UK’s national conversation on the future of money. This Consultation Response continues that conversation and sets out the steps that will follow during the design phase. 

Introduction and key messages

The way payments are made, and the type of money used to make them, is changing. Cash is, and will continue to be, important for a large cross-section of society. That is why the Bank, the Government, the FCA and the PSR will continue to safeguard access to cash. At the same time, as the UK economy becomes more digital, electronic payments are increasingly widespread and are now the most prevalent payment method. And new technologies are emerging, often outside the traditional finance sector, with the potential to support new payment services and new forms of money in the future. In that context, since 2020 the Bank and HM Treasury, alongside public authorities in many other countries, have been exploring the concept of retail CBDC. In the UK this would be ‘the digital pound’, issued by the Bank. It would complement physical cash and other payment mechanisms as a new form of digital money for use by households and businesses for their everyday payment needs.

Such a digital pound would help to ensure that central bank money remains available and useful in an ever more digital economy, continuing to support UK monetary and financial stability. It would also provide a public platform for private-sector innovation, promoting further competition, efficiency and choice in payments.

In February 2023, the Bank and HM Treasury published a Consultation Paper to seek feedback from the public on a set of design proposals for a digital pound. In that paper, the Bank and HM Treasury judged it likely that a digital pound would be needed in the future. Rather than assessing that question against the status quo of payments today, it is vital to consider how a digital pound could fit into a future payments ecosystem. That ecosystem will be increasingly digital, with opportunities to harness innovation, but could also be fragmented, if users are tied into particular digital platforms. In light of this, the Consultation Paper explained that, if current trends in payments continue, a digital pound could be a ‘solution’ to two ‘problems’: first, risks to the ‘uniformity’ or ‘singleness’ of money, and second, risks to competition in payments.

To keep pace with future payment needs, such a digital pound would provide an open and flexible platform for the development of future retail payments services by the private sector. It would support continued innovation, allowing the private sector to shape future use cases that could be difficult to anticipate today, for the digital pound and other digital payments.

It is too early to decide whether to introduce a digital pound, but the Bank and HM Treasury judge that further preparatory work is justified to enable us to respond to developments in the payments landscape and to reduce materially the lead time if there is a future decision to introduce a digital pound. The publication of the Consultation Paper marked the start of the design phase of the project. Respondents’ feedback will help to inform the work on the design of a digital pound, in both technology and policy terms. On completion of the design phase around the middle of the decade, the Bank and the Government will decide whether to proceed to build a digital pound. If the decision was taken to do so, a digital pound would only be introduced once both Houses of Parliament had passed the relevant legislation.

Ongoing work on a digital pound helps to put the UK at the cutting edge of the future payments landscape. Even if the Bank and the Government decide not to launch a digital pound, the preparatory work being undertaken during the design phase is critical to understand and prepare for future changes in the payments landscape.

The Bank and HM Treasury received over 50,000 responses to the Consultation Paper from a combination of individuals, private firms, industry representative organisations, civil society groups and academics.

The widespread interest in the digital pound project and the extent of thoughtful and considered engagement provided by the large number of respondents are welcome. Effective public engagement is essential to ensure that any future decisions for a digital pound are robust.

The majority of the responses commented on the broader societal implications of introducing a retail CBDC, such as the future of cash, and the privacy and rights of users of a digital pound.

Trust is a prerequisite for a digital pound. The Bank and HM Treasury sought to provide assurances in the Consultation Paper that measures would be put in place to ensure the public would have confidence in using a digital pound. For example, the Bank, as operator of the core infrastructure, would not have access to personal data. Private-sector digital pound wallet providers, Payment Interface Providers (PIPs), would anonymise personal data before transactions are processed and settled by the Bank. The Bank and HM Treasury would also not pursue government or central bank-initiated programmable functions.

Respondents’ feedback has highlighted that concerns remain. The Bank and HM Treasury are committed to providing the public with the further reassurance they seek. To that end, this Consultation Response sets out a range of measures that would govern a digital pound, if the decision were made to introduce it:

• Before any launch of a digital pound, the Government has committed to introducing primary legislation. This means that a digital pound would only be launched once both Houses of Parliament had passed the relevant legislation.
• Privacy would be a core design feature of a digital pound:
  • The Bank and the Government would not access users’ personal data – and legislation introduced by the Government for a digital pound would guarantee users’ privacy.
  • The Bank commits to exploring technological options that would prevent the Bank from accessing any personal data through the Bank’s core infrastructure.
• The Bank and the Government would not program a digital pound – and legislation introduced by the Government for a digital pound would guarantee this.
• The Government has legislated to safeguard access to cash, ensuring that it would remain available even if a digital pound were launched.

This initial consultation has demonstrated the high level of interest in the digital pound, even at this early stage. There would be further public consultation were the Government to introduce primary legislation in the future.

The majority of feedback received to the Consultation Paper was general, providing views on a handful of aspects on the possible societal implications of a retail CBDC. Fewer respondents chose to provide feedback on a question-by-question basis. For some specific questions, there was a range of views on the design proposal for a digital pound set out in the Consultation Paper. But on balance, and as set out in this paper, these responses confirmed that the proposed design choices were seen as reasonable and well-grounded.

The Bank and HM Treasury judge that the design proposition in the Consultation Paper remains the right basis for further exploration of a digital pound during the design phase, although significant further work is required to flesh out a detailed proposition. To that end, the Bank and HM Treasury have developed a set of design principles (Diagram 1) that will guide the work in coming years, alongside continued engagement with stakeholders. These principles have been informed by the responses received to the Consultation Paper.