A Digital Pound – Do We Need It?

Anyone with an interest in the financial world should take a look at a consultation paper issued jointly by the Bank of England and HM Treasury on proposals for a “Digital Pound: A new form of money”.

A digital pound would be a new form of digital money for use by households and businesses for their everyday payments needs. As part of the wider landscape of money and payments it would sit alongside, not replace, cash – a digital counterpart to familiar, trusted banknotes and coins, subject to rigorous standards of privacy and data protection.

Unlike crypto assets and stable coins, the digital pound would be a central bank digital currency or CBDC – sterling currency issued by the Bank of England and not the private sector.

As the Paper says: “This is part of the Government’s vision for a technologically advanced, sustainable, and open financial services sector that is globally competitive and acts in the interests of communities and citizens, creating jobs, supporting businesses, and powering growth across all four nations of the UK. A UK central bank digital currency – a ‘digital pound’ – would be a new form of digital money for use by households and businesses for their everyday payments needs.

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. Any future digital pound would be a major piece of national infrastructure which would likely take several years to complete. Its launch would require deep public trust in this new form of money – trust that their money would remain safe, accessible, and private”.

But do we need it? Our money is already digitised. Banks do not hold stacks of paper bank notes or gold coins. Our bank holdings are simply records in digital ledgers. We can make digital payments by simply instructing our bank to do so, or by using debit/credit cards or phones.

Introducing a central bank digital currency would introduce privacy and security risks which might have much wider impacts than individual banks at present.

But relying on commercial organisations to provide open payment systems when they might prefer to build private monopolies is a risk that should be avoided.

The consultation paper does provide a good overview of the existing use of money and payment systems.

One aspect of the proposals is that there should be quite low limits on the amount of digital pounds that any one person could hold (as little as £5,000 or up to £20,000). It is not clear why there should be such a limit.

I have not personally responded to this consultation but readers may care to do so.

Consultation Paper:  https://www.gov.uk/government/consultations/the-digital-pound-a-new-form-of-money-for-households-and-businesses

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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