This blog post is a collaboration with Mardi MacGregor and Andrew Marra of Fox Williams LLP, a London-based firm.

On February 7, 2023, the Bank of England (BoE) released two documents concerning a central bank digital currency (CBDC), a prospective government-backed digital form of U.K. currency also known as the "digital pound."

The consultative document (Consultation), jointly released with HM Treasury (HMT), describes the government's emerging vision of the digital pound, including its functionality and financial stability implications. The accompanying technology working paper (Technology Paper) provides an overview of technical design considerations. [1]

Both documents invite responses from the public, which are due by June 7, 2023.

The Consultation and Technology Paper signal that a digital pound appears inevitable.[2] If necessary approvals are received, the U.K. may launch a digital pound in the next several years.[3] Below is an overview of the Consultation, along with a description of broader policy issues. A more detailed view of the general pros and cons of a CBDC can be found in these key takeaways from the U.S. Federal Reserve's CBDC Discussion Paper.

Consultation Overview

The report suggests that the digital pound would likely take the form of a retail CBDC, issued by the BoE, used by businesses and households alike for everyday transactions.[4] The BoE stresses that a digital pound would not replace cash, but exist alongside physical currency, as an additional form of card or touchless payment methods accessible through a smartphone. The digital pound would be a direct claim on the BoE (as issuer), and would always have the same value interchangeable with a banknote. In this respect, the digital pound would closely resemble current "private money" or bank accounts, but with the additional protection offered by a central bank ledger (i.e., blockchain).[5]

The digital pound would involve a central infrastructure, or "core ledger." The BoE proposes the adoption of a so-called "platform model," analogous to the "two-tier" model favored by the U.S. Treasury, where public access to the central, government-operated ledger would be intermediated by regulated private entities, such as banks, FinTech companies, and other approved non-bank private businesses.[6] These approved intermediaries would have exclusive access to an intermediate layer between the central ledger and the user-interface (or the Application Programming Interface (API)), through which they would be permitted to build out applications and mechanisms for storage of the digital pound through "pass-through wallets" ("wallets").

These digital wallets (accessible via a smartphone or smart card) would be provided by private businesses (e.g., banks or approved non-bank firms), and would record user's holdings anonymously (as a means to safeguard user privacy). The wallet would effectively pass instructions from the user to the core ledger. The end-user would interface with their wallet, not with the BoE, and would be able to execute transactions by instructing payments and transfers.[7]

The BoE proposes strict regulation of companies who are permitted to provide interface services for the central bank ledger, ensuring that digital pound payments are reliable and interoperable.[8] The proposed digital pound would be subject to rigorous privacy standards, ensuring that private companies safekeep users' personal information and monitor transactions for illicit financing, money laundering, and terrorism.[9]

In the same way that banks and other financial service providers are tasked with ensuring compliance with anti-money laundering regulations, as well as anti-terrorism or illicit financing requirements, banks and other private sector intermediaries between the central ledger and users would be tasked with maintaining similar compliance measures. According to the BoE, this would render the digital pound "at least as private as current forms of digital money, such as bank accounts," because the identity of users would only be known to the private company that provides interface services, and neither the government nor the BoE would have access to the financial or personal information of users unless such access was required by law, the standards for which would be the same as those currently in place with respect to other digital payments and bank accounts generally.[10]

The case for a digital pound

The BoE states that the digital pound will likely become necessary to (1) preserve the role and public access to money issued by the U.K. central bank; and (2) promote innovation, choice, and efficiency. Other grounds identified by the BoE include supporting inclusivity, payments resiliency, and the improvement of cross-border payments.[11]

Preserving the Role of the Pound. The Consultation notes changes to how people use money and render payment as the basis for why a digital form of central bank currency is likely to be necessary in the future. The BoE notes that the majority of payments in the U.K. are now made through card or contactless methods, a form of "private" money (such money is "private" because it is held by private commercial banks in the form of deposits. Roughly 95% of the funds held by people in the U.K. are private money, the bulk of which is transferred by electronic means.)[12] The BoE adds that nearly a third of retail shopping is done online, purchases for which "public" money (i.e., cash) is not accepted. [13] Given the trend of increasing dominance by so-called "private" money, the BoE foresees that the public's access to, or use of, public central bank money will decline over time, which could pose a risk to monetary and financial stability.[14] A more proportional balance between public and private money is critical, the BoE states, because private money poses greater risks than public money. While money held in a private bank account is subject to credit, market, and liquidity risks largely outside of one's control, the cash held in one's pocket is not. Therefore, according to BoE, the introduction of a digital form of central bank direct-issue currency is needed to ensure that citizens continue to have convenient access to safe liquid assets backed by the state.[15]

Promoting Innovation, Choice, and Efficiency. The BoE states that innovations in financial and payments technology (e.g., contactless card payments, mobile payment apps, payment facilitators) have benefitted U.K. citizens and the economy-at-large. While there is still room for greater efficiency, BoE notes that such innovation has increased market concentration. The Consultation suggests that the introduction of a digital pound could mitigate the entrenched dominance of a small number of prominent FinTech firms that limit consumer choice and hinder market entry.[16] Further, the digital pound would be a "public-private partnership" designed to support innovation and foster competition. By creating a trusted infrastructure platform and settlement asset upon which private businesses can build and interface with users, the BoE believes that the digital pound would be a boon to innovation.[17]

The role of financial stability and monetary policy

Financial Stability. If and when a digital pound is introduced, the effect of retail consumers transferring all or some of their money from a bank account into a digital pound would be a loss of deposits at commercial banks (i.e. bank disintermediation).[18] While the BoE states that it would seek to limit the risks to monetary policy and financial stability posed by this process, it also states conclusively that it does not "seek to preserve the status quo" or protect the business model of the commercial banking sector.[19]

A loss of retail deposits would necessitate more bank reliance on wholesale deposit funding.[20] The increased expense of wholesale deposit funding would likely pass increased costs onto consumers, namely in the form of higher interest rates on loans as well as a broader decrease in credit availability. The likely occurrence of these negative effects, together with their severity, would depend, however, on the speed and scale of adoption of the digital pound, and is therefore uncertain.[21]

As a means of addressing this concern, the BoE would seek to place some limits on holdings of digital pounds, at least during its introductory period. An individual limit of between £10,000 and £20,000 is proposed (in contrast the European Central Bank's proposal of a €3000 limit on consumer CBDC accounts).[22]

Monetary Policy. The BoE contemplates the impact a digital pound could have on the sensitivity of the real economy to monetary policy, the equilibrium interest rate, and economic productivity.[23] While the BoE is optimistic that such impacts could be slight or mitigated, they admit that a multitude of contingencies render the exact impact uncertain.[24]


The BoE, the Federal Reserve, and other central banks around the world have cited the rise of private digital currencies as being a key motivator in their consideration of CBDCs. Particularly with the rise of cryptocurrencies and stablecoins, central banks have communicated the need for an alternative.

Any future CBDC would be a major piece of national infrastructure which is likely to take several years to complete. Its launch would require public trust and confidence that money will remain safe, accessible, and private. In the United Kingdom, HMT and the BoE have recognized that the journey towards any digital pound will need to involve an open, national conversation about the future of money, accompanied by detailed technical work. The Consultation opens this conversation, but there are still many questions that remain unanswered:

  • Will a new CBDC further reduce the use and acceptability of physical cash and if so, how will vulnerable members of the public with limited access to technology (including the elderly, disabled, and low-income households) continue to access "public" money (or money in general)?
  • Who will decide which private entities will be permitted to "intermediate" between the central bank ledger and members of the public, and how will these private entities monetise their involvement? How will policymakers balance opposing interests in, for example, fostering competition by permitting a large number of intermediaries, and protecting user-security and financial stability, which might favor restricting the number of intermediaries?
  • How will the new CBDC impact the existing commercial banking sector (for example, Banks who stand to lose business)?
  • Do we trust the government to get the technology right, and if so, how soon will the system need to be updated to reflect future technological developments?

In the United States, policymakers are continuing to debate whether to introduce a CBDC, and if so, what form it would take. The Federal Reserve would only issue a CBDC with the support of the executive branch and Congress, and more broadly the public.[25] Even as policy deliberations continue in the United States, the Federal Reserve is conducting technology research and experimentation (alongside its central bank counterparts globally) to inform design choices so that it is positioned to issue a CBDC if it were determined to be in the national interest.

Today, 114 countries, representing over 95 percent of global GDP, are exploring a CBDC (in contrast to May 2020, when only 35 countries were reportedly doing so).[26] According to the Atlantic Council Geoeconomics Center, a new high of 60 countries are in an advanced phase of CBDC exploration (development, pilot, or launch).[27]

While the specific timing of any country's CBDC launch is unknown, CBDC exploration is likely to continue at a steady pace, and will be important for consumers, investors, and business to track.

[2] The U.S. Treasury issued a 2022 report addressing potential issues and benefits of U.S. CBDC but indicated that further research would be needed. See U.S. Treasury, The Future of Money and Payments (Sep. 2022).

[3] Consultation Paper, at 5.

[4] Id. at 7.

[5] Id. at 13.

[6] Id. at 11.

[7] Id. at 11.

[8] Id. at 11.

[9] Id., at 12.

[10] Id. at 12.

[11] Id. at 24.

[12] Id. at 9.

[13] Id. at 8.

[14] Id. at 10.

[15] Consultation at 25.

[16] Id. at 31.

[17] Id. at 32.

[18] Id. at 39.

[19] Id. at 38.

[20] Id. at 39.

[21] Consultation, at 40.

[22]Id. at 80. See also Fabio Panetta, "Evolution or revolution? The impact of a digital euro on the financial system," February 10, 2021,

[23] Consultation, at 44.

[24] Id. at 53.

[27] Id.