A digital pound developed by the Bank of England could end up running on software that is not a blockchain, the distributed database technology underpinning cryptocurrencies and other digital coins issued by central banks.
All options are on the table as the UK plugs ahead with research to figure out if a digital pound — which has been dubbed “Britcoin” — is worth building, according to Tom Mutton, who heads the Bank of England’s central bank digital currency (CBDC) project.
At a recent meeting of technologists hosted by the Bank to discuss how a digital pound might be designed, “none of them agreed with each other at any point,” Mutton said in a podcast interview with Bloomberg News.
The Bank plans to trial several different versions of ledgers, including public blockchains similar to those underpinning cryptocurrencies like Bitcoin, to see which option might work best for a UK CBDC. Proponents of blockchain technology have touted its efficiency over existing payment rails, and more than a hundred central banks around the world are exploring whether a digital currency is worthwhile for their economies.
“We definitely want to be compatible with distributed-ledger business models in the private sector, but we were not convinced that distributed ledgers offered more efficiency over conventional ledgers,” Mutton said. “It’s very much open.”
The UK Treasury and the Bank established a joint taskforce to research a UK CBDC in April 2021. An initial proposal this year suggested placing a limit on how many digital pounds consumers could hold, in an effort to avoid disintermediating private sector banks from the financial system.
A call for responses to the Bank’s consultation on whether to build a CBDC is set to end on June 30, after which it will spend two to three years evaluating the technology and policy requirements before making a final decision. The earliest that an eventual CBDC could appear is in the second half of this decade.
A digital pound would be the first consumer-facing service launched by the Bank for some time. The product would likely not feature the Bank of England’s branding, Mutton said, as consumers would largely use digital pounds through wallets developed by companies in the private sector.
“I‘m not sure that we want people to see this as a Bank of England product,” Mutton said. “It might be best to see it as something which is a way of paying, which is offered by your private-sector wallet, and you just know it’s very, very safe.”
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