No decision has yet been taken by the government and the Bank of England on whether the UK should issue a central bank digital currency (CBDC). However, a formal consultation process will kick off in 2022, with the earliest window for launching a digital pound or ‘BritCoin’ being in the second half of this decade.

That’s according to a written statement made to the House of Commons this week by Treasury Minister John Glen, also made to the House of Lords by Minister of State Lord Agnew.

The UK is “actively exploring” the potential role of a retail CBDC, “as a complement to cash and bank deposits”, said Glen. 

A retail CBDC would be a new form of digital money, denominated in Sterling and issued by the Bank of England. The government has said that a digital pound could aid financial inclusion and speed up financial transfers.

“Exploring the opportunities that a CBDC could offer is aligned with the government’s wider agenda to remain at the forefront of innovation and technology in financial services,” he explained.

However, Glen sounded a note of caution in describing a CBDC as a “major national infrastructure project” – something the UK has a poor track record in undertaking swiftly, efficiently, and effectively, which may prove to be a problem.

So, what’s behind this week’s statement?

As previously reported on Transform Finance, earlier this year Chancellor of the Exchequer Rishi Sunak announced a joint taskforce between the Treasury and the Bank of England to explore the potential for a CBDC, along with stakeholder forums. 

In 2022, the Treasury and the Bank of England will publish a formal consultation setting out their assessment to date of the case for a CBDC, including the merits of developing an operational and technology model for it.

“If there is a decision to proceed following the consultation, a development phase would include the publication, by the Bank of England, of a technical specification to explain the proposed conceptual architecture for a UK CBDC,” continued Glen. “This development phase could involve in-depth testing of the optimal design for, and feasibility of, a UK CBDC.

“Following this, a decision would be taken on whether to move into a subsequent build and testing phase. Given the scale and national importance of such a project, this phase would likely take several years and could involve the development of large-scale prototypes and live pilots.”

Were the results of each phase to conclude that the case for a robust CBDC had been made, then the earliest date for launch would be in the second half of the decade, he said.

However, the government may need to be much bolder than that, to avoid coming to the table too late with a viable digital offering. 

China has already launched experimental quantities of the digital yuan, potentially allowing it to force other countries to use it in any trade with the country. This would give it enormous power in international finance and is the likely reason for Beijing’s recent crackdown on cryptocurrency trading, to shift the emphasis onto the digital yuan.

Meanwhile the EU, the US, India, Sweden, and most other major economies are actively exploring the CBDC concept, with the US seen as lagging behind other major national banks, arguably as a legacy of the Trump administration’s slowness to embrace new ideas.

In July this year, the European Union announced that its own digital euro investigations would have a two-year timescale, potentially preparing the ground for launch some years before the digital pound. That would be embarrassing for the UK, despite Britain not having joined the euro during its membership of the EU.

A statement from the European Central Bank in the summer said, “A digital euro must be able to meet the needs of Europeans while at the same time helping to prevent illicit activities and avoiding any undesirable impact on financial stability and monetary policy. This will not prejudge any future decision on the possible issuance of a digital euro, which will come only later. In any event, a digital euro would complement cash, not replace it.

“During the project’s investigation phase, the Eurosystem will focus on a possible functional design that is based on users’ needs. It will involve focus groups, prototyping and conceptual work. The investigation phase will examine the use cases that a digital euro should provide as a matter of priority to meet its objectives: a riskless, accessible, and efficient form of digital central bank money.”