After issuing a consultation document outlining the proposed digital pound, sometimes called as "Britcoin," the UK is one step closer to introducing a central bank digital currency (CBDC).
The Bank of England and the U.K. Treasury jointly issued the 116-page consultation paper on February 7. A technology working paper that explores the technical and financial design factors was also published.
The report claimed that CBDCs like the digital pound may co-exist in what they anticipate would be a "mixed payments economy," notwithstanding the emergence of privately-issued stablecoins in recent years.
“In much the same way that cash exists alongside private money, the digital pound does not need to be a dominant form of money in order to meet its public policy objectives. The digital pound could exist alongside other forms of money, including stablecoins.”
Although no decision to adopt a digital pound can be made at this time, the document noted that "The Bank and HM Treasury think a digital pound is likely to be needed in the UK."
According to the article, deploying the digital pound is primarily being done to assure U.K. To "encourage innovation, choice, and efficiency in domestic payments," the central bank's money continues to be "an anchor for confidence and stability" in the nation's monetary system.
“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.”
Users will have access to e-GBP via accessing to an API maintained by the private sector, which links to the core ledger.
Atomic swaps, which let assets to transfer between networks, and other programmability capabilities like smart contracts will be enabled.
The report acknowledges that the private sector would contribute to the construction of such infrastructure, but it also suggests setting individual restrictions of between 10,000 and 20,000 British pounds ($12,000 to $24,000) to effectively preclude its usage as a savings account:
“A limit on individual holdings would be intended to manage those risks by constraining the degree to which deposits could flow out of the banking system. That is important during the introductory period as we learn about the impact of the digital pound on the economy.”
It was also stated that many members of the crypto community have privacy concerns. The report noted, without going into further detail, that an e-GBP would be held to "rigorous norms" of data protection and privacy.
Because transactions would be recorded anonymously on the main ledger, users will "enjoy at least some amount of privacy," according to the statement's additional explanation.
The report did note, however, that "bank disintermediation," or the reduction in deposits placed into commercial banks, is one way that an e-GBP may affect the business models of commercialized banks.
The usual ways of creating money would not be significantly altered by the digital pound, although this might have an impact on the stability of the currency. The transmission of monetary policy to the actual economy may be impacted by bank disintermediation, according to the consultation paper.
The central bank thinks the digital pound might increase financial inclusion in the United Kingdom population.