Digital Pound: UK's Game-changing Solution to Bank Risks
Bank of England's Official explains why UK needs a safer Digital Pound.
The Bank of England's (BoE) head of strategy and architecture, William Lovell, talked about why the UK needs a Digital Pound. Current digital payment methods are risky because they depend on banks, which can face problems. Lovell said the new Digital Pound would reduce this risk.
Lovell spoke in a webinar called “Demystifying the Digital Pound,” presented by the Digital Pound Foundation and The Payments Association. He said a Digital Pound would not create a “surveillance state.”
The Digital Pound Foundation promotes a UK Central Bank Digital Currency (CBDC). The Payments Association is a community of payment professionals.
Lovell said the UK wants a CBDC for everyday spending by regular people. It would be a “digital version of a banknote.” The Bank of England (BoE) and the UK government will not have access to personal data related to the CBDC.
Banks and tech companies will handle data checks and services connected to the Digital Pound. The CBDC won't be completely anonymous to prevent financial crimes. Users can change their privacy settings based on their needs.
The BoE's strategy includes a “platform model.” Under this model, the BoE will operate the basic system that records transactions and account balances, similar to printing physical money.
Users will access the CBDC via new Payment Infrastructure Service Providers (PISPs), offering various products and services. Banks and tech companies are expected to become PISPs. This won't remove the need for bank accounts because banks offer other services like loans.
Lovell mentioned the risk of fast, large withdrawals from banks during crises, which could be increased by the easy transactions of CBDCs.
To reduce this risk, there may be limits on how much money individuals can hold in Digital Pounds. The BoE is considering limits of £5,000, £10,000, and £20,000.
The BoE's consultation on the Digital Pound began in February and ends this month. It received tens of thousands of submissions. The BoE will continue developing and communicating about the Digital Pound model over the next two years before deciding on its launch.
