The Digital Pound: Insights from the Bank of England and HM Treasury’s Response to UK CBDC Consultation Feedback
2 February 2024
Taken from the published LinkedIn pulse article.
On 25 January 2024, the Bank of England and the UK Government’s HM Treasury published a Response to the Consultation Paper The digital pound: A new form of money for households and businesses?
The consultation had sought the public’s feedback on the core design of a digital pound, notably seeking views on the platform model and public-private partnership; data protection and privacy; and user experience.
In the context of widespread scepticism across jurisdictions towards Central Bank Digital Currencies (CBDCs), the Response is both revealing of the prevailing cautionary sentiment towards the UK’s CBDC initiative, as well as the approach being taken by the Bank and HM Treasury to mitigate concerns and build support for the project.
Below are the main takeaways from the response:
High public engagement with the Consultation: The Consultation received 51,529 responses from a broad range of stakeholders including the public, businesses, and academia. This is a significant number of responses to a public consultation (in contrast, HM Treasury’s consultation and call for evidence last year on the UK’s future financial services regulatory regime for cryptoassets received 131 responses) and reveals the strength of feeling held towards CBDCs.
Societal implications are a significant cause for concern: According to the Bank and HM Treasury, “the majority of the responses commented on the broader societal implications of introducing a retail CBDC” such as the future of cash, privacy, and user rights. There were also concerns about how a digital pound would integrate with existing monetary systems and the impact on cash access and freedom of choice for consumers.
Privacy has proven to be a key point of contention in the development of CBDCs and despite concerted attempts by the Bank and HM Treasury to reassure the public, stating “that a digital pound would be subject to rigorous standards of privacy and data protection”, the Response reveals that scepticism continues. “There was wide agreement that the Government and the Bank should not have access to personal data but many expressed concerns that this would not be adequately implemented or enforced."
An emphasis on a cautious approach: Whilst the Bank and HM Treasury acknowledge the potential future need for a digital pound, they also state that “it is too early to decide whether to introduce the digital pound”. Amid public scepticism towards CBDCs, the Bank and HM Treasury are keen to acknowledge the need for and commit to further public consultation before any definitive decision is made. Additionally, the Bank and HM Treasury state that a move to introduce a digital pound would require parliamentary approval through primary legislation to ensure privacy protection and limit government overreach into personal finances.
Digital pound design: The Response states that "in light of the feedback received, the Bank and HM Treasury think that the design of a digital pound proposed in the Consultation Paper remains appropriate to deliver the Bank and HM Treasury's public policy objectives". While a detailed design is yet to be undertaken, the initial blueprint proposes that private firms would handle customer interfaces, while the Bank would oversee the digital pound's infrastructure and therefore theoretically limit government access to personal data. According to the Consultation, this would give the digital pound “the same (or stronger) privacy protections as bank accounts, debit cards or cheques”. However, as the Response makes clear, there is still widespread scepticism of this principle in implementation.
A vague timeline moving forward: With the digital pound currently in the design phase, the Bank and HM Treasury are evaluating its feasibility, design, and technological capabilities with the Response stating that “transparency around the work and engagement with a diverse group of stakeholders will be more important than ever in the design phase”. The design phase will end with a decision on whether to go ahead with the digital pound and proceed to the build phase of the project. This decision is expected around the mid-2020s at the earliest.
Concluding Assessment
In their Consultation Paper, the Bank and HM Treasury made significant efforts to address concerns regarding privacy and user rights in the context of a potential digital pound. Despite these efforts, the Response shows that such issues remain highly contentious.
The cautious approach taken by the Bank and HM Treasury - favouring exploration over outright commitment to a digital pound - therefore reflects an understandably pragmatic stance amidst the highly contentious debate over CBDCs.
As the design phase of the digital pound progresses and the Bank and HM Treasury seek to address the issues of design, capability, and feasibility, it is important to note that they still face a possibly greater hurdle in shifting the prevailing public scepticism to a more favourable one. Fundamentally, this will require not just rhetorical commitments of privacy and user protection but actual technical design measures to ensure them. Without such guarantees, widespread support for a digital pound remains uncertain.
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