Credit: Pabitra Kaity/Pixabay

HM Treasury is pressing ahead with explorations of the introduction of a “digital pound” and has unveiled its vision of how a national virtual currency will work.

A newly published consultation document reveals that the government believes that a central digital currency, backed by the Bank of England, “is likely to be needed in the future”.

Although a firm decision on the introduction of such a currency is yet to be taken, the UK central bank “will now take forward further research and development work”. This process includes a new consultation through which the public are invited to provide feedback.

“Both HM Treasury and the bank want to ensure the public have access to safe money that is convenient to use as our everyday lives become more digital, while supporting private sector innovation, choice and efficiency in digital payments”, the government said.

If a digital pound is introduced, it would always be worth the same as the equivalent amount in cash – and the government pledged that physical money is “here to stay”, regardless of digital developments. 

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The Bank of England would implement a “central public infrastructure in the form of a ‘core ledger’ – a fast, resilient, secure technology platform – which would provide the minimum necessary functionality”, according to the government.

“Regulated private firms could then use this infrastructure to design innovative, user-friendly services and handle all customer-facing interactions”, .it added

Citizens, meanwhile, would be able to access and spend money via digital wallets that would be stored on their phones or on dedicated smart cards, and would operate in the same way as current contactless-payment technology. It is intended that virtual money could be used for one-off payments or transfers, but would not be suitable for savings accounts – and would not accrue interest.

The Treasury pledged that a digital pound would also be “subject to rigorous standards of privacy and data protection, [and] neither government nor the bank would have access to personal data and holders would have the same level of privacy as a bank account”.

Governor of the Bank of England 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. However, there are a number of implications which our technical work will need to carefully consider. This consultation and the further work the bank will now do will be the foundation for what would be a profound decision for the country on the way we use money.”

The consultation is open until midnight on 7 June.