The Question of the Digital Pound

The digital pound, ‘Britcoin’, is a central bank digital currency (CBDC) proposed by the Bank of England and HM Treasury.

In 2023, the Bank of England released the Digital Pound Consultation Paper. In this paper, the Bank outlined the timeline and the future need for the digital pound while weighing, to a certain extent, the benefits and detriments of introducing it.

In this article, we examine the justifications for introducing the digital pound, as well as the arguments against it, as presented by the public and the commercial sector. Based on the latest updates, provided in January 2025, the digital pound remains in the design phase, and no decision has been made on whether it will be introduced.

The justifications for the digital pound are numerous. The primary arguments introduced by the Bank and HM Treasury are the future need and monetary sovereignty of sterling. The future need argument is driven by the need for innovation, following the path of increased digital payments. Critical statistics provided in the consultation paper indicate that ‘95% of funds held by individuals are held as private money’, typically through commercial banks and spent electronically. Moreover, the digital pound aims to preserve the Bank of England’s central role in issuing trusted money, thus maintaining the sovereignty of sterling amid the rise of private digital currencies such as stablecoins. Nevertheless, the paper recognises that introducing the digital pound now is a premature move, noting that further research and consultation are required.

The Bank of England also emphasises that the digital pound would not replace cash, which will remain in circulation. Although, cash use is expected to decline as digital payments become more efficient and convenient.

Key challenges

Primary public concerns lie in privacy. Although the Bank of England maintains that personal data would not be shared with the government, the digital pound could still increase visibility into transactions as part of efforts to combat financial crime.

Commercially speaking, the introduction of the digital pound is likely to reduce deposits in commercial banks, potentially reducing their role in the financial system.

Nevertheless, trust is vital to the success of the digital pound. Therefore, without public confidence, which would manifest in the use of the digital pound, it is unlikely that the CBDC would succeed or even be introduced. The BoE has opened public discussions for the digital pound to ensure engagement and increased confidence.

How will the digital pound differ from other forms of digital currency?

Why would the Bank of England and HM Treasury introduce a digital currency when private cryptocurrencies like Bitcoin and Ethereum already exist? The key difference lies in stability and trust.

Unlike cryptocurrencies, whose value fluctuates wildly based on market stabilityand investor confidence, a digital pound would be issued and guaranteed by the Bank of England. It would hold the same value as physical cash, i.e. one digital pound would always equal one pound in cash and could be exchanged for such, making it a far more reliable and secure means of exchange.

Student Re-focus

Beyond these points, there is much more to explore about the digital pound. Reading the consultation paper can help develop a deeper understanding of its potential impact on the political, environmental, and economic landscape. As the debate evolves, the development of CBDCs remains a vital topic for commercial awareness as it would largely affect Big Law’s clients, particularly commercial banks and businesses’ operations.