The UK is moving forward with its central bank digital currency (CBDC) plans after publishing an in-depth consultation paper on the proposed digital pound, which has been dubbed “Britcoin”.
In its 116 pages, the paper details the Bank of England (BoE) and UK Treasury’s stance on the “likely need” for a digital pound and their proposed model. A technology working paper was also released to explain technical design concepts and decisions.
The paper reiterates the BoE’s belief that CBDCs like the digital pound can co-exist with private stablecoins and fiat cash in a “mixed payments economy”.
“A digital pound would help to ensure that central bank money remains available and useful in an ever more digital economy, continuing to bolster UK monetary and financial stability while safeguarding the UK’s monetary sovereignty in a changing global financial system,” said Jeremy Hunt, Chancellor of the Exchequer.
The paper also confirms the BoE and the Treasury’s hesitancy in going full throttle with any CBDC plans.
“The Bank and HM Treasury consider a digital pound is likely to be needed in the UK though no decision to introduce one can be taken at this stage,” it says.
Should plans go ahead, Britcoin would need to be effectively integrated into the UK’s retail economy through “public-private partnerships” to incentivise adoption.
“For the digital pound to play the role that cash plays in anchoring the monetary system, it needs to be usable and sufficiently adopted by households and businesses,” the paper says.
Individuals would access Britcoin through private sector APIs that are connected to the core ledger.
The paper also said that programmable features such as smart contracts and atomic swaps, which allow for cross-network asset transfers, would be included.
In terms of privacy issues, the paper insisted that the digital pound would be subject to “rigorous” privacy standards and data protection laws.
It explained that the digital pound would require user verification to prevent financial crime, removing its anonymity, but that the government and BoE would not have access to users’ personal data.
The paper raised the potential issue of bank disintermediation for commercial banks if fewer people are making deposits with these institutions due to a CBDC.
“The digital pound would not fundamentally alter the traditional channels of money creation, but it might affect monetary stability. Bank disintermediation might affect the transmission of monetary policy to the real economy,” it said.
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