8.3.2023 | Tax

Is a digital pound on its way to the UK?

According to a recently published paper by HM Treasury and the Bank of England, the UK will likely need a digital pound in the future. 

The two are now consulting on a potential digital pound or central bank digital currency (CBDC) which would be issued by the Bank of England and could be used by households and businesses for everyday payments in-store and online.

If introduced, it would be interchangeable with cash and bank deposits, complementing cash and not replacing it.

The consultation is being launched because both HM Treasury and the Bank of England want to help the public have access to safe money that is convenient to use as life becomes more digital while also supporting private sector innovation, choice and efficiency in digital payments.

When could it roll out?

It’s important to note that no decision has been taken at this stage to introduce a digital currency and The Bank of England will take forward further research and development work, as well as ask the public to give their views on the scheme.

Andrew Bailey, Governor of the Bank of England, said: “As the world around us and the way we pay for things becomes more digitalised, the case for a digital pound in the future continues to grow. A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability.

“However, there are a number of implications which our technical work will need to carefully consider.”

A decision about whether to implement a digital pound will be taken around the middle of the decade and will largely be based on future developments in money and payments. The earliest stage at which the digital pound could be launched would be the second half of the decade.

What would a digital pound involve?

Authorities say a digital pound would be subject to rigorous standards of privacy and data protection and that holders would have the same level of privacy as a bank does. The government nor the Bank would have access to private information.

It would likely be accessed through digital wallets and offered to consumers by the private sector through smartphones or smartcards.

Countries around the world are considering similar proposals including the Eurozone, the US and China.

How is it different to cryptocurrency?

Unlike crypto-assets and stablecoins, the digital pound would be issued by the Bank of England and not the private sector. The Government says it is already separately legislating to protect Access to Cash.

This means that it will have intrinsic value and not be volatile, unlike unbacked crypto assets, as there would be a central authority to back it.

Director at Beatons Stephanie Hammond said: “In general, given how we now live, the introduction of a digital pound would likely be a positive step for businesses and households. It forms part of the digital evolution of finance, and overall, this should be looked upon positively. The Bank of England has a responsibility to help society evolve, and considering the way so many of us do business, pay bills and shop online, this does have merit.

“A decision is not due yet, and the news that there is no rush to establish a digital pound is welcome as this means that businesses and households can feel reassured that the digital pound is being carefully considered to ensure it is accessible and safe for all.”

The government says the design of the digital pound would be simple and straightforward so that it can be easily understood and trusted.

For more information see: HM Treasury and Bank of England consider plans for a digital pound – GOV.UK (www.gov.uk)

For help or advice on future-proofing your business, or for any other accountancy matters contact Beatons info@beatons.co.uk or call 01473 659777.