On 7 February, the Bank of England (the Bank) and His Majesty’s Treasury (HM Treasury) jointly published a Consultation Paper on the development of a Central Bank Digital Currency (CBDC) for the UK (or a digital pound).

The three key take aways in respect of a likely digital pound are:

  • No final decision has been made on whether there will be one, but the use case is sufficiently sound to warrant a move from the current conceptual phase on to the design and development phase.
  • The final decision will be made at the end of the design and development phase – likely 2025/26.
  • The most likely approach will be public-private partnership – with the Bank providing the digital pound and the central infrastructure; and private sector companies (banks or approved non-bank firms) providing the interface between the Bank and end users via digital ‘pass-through’ wallets.
  • The digital pound will be private but not anonymous. The private sector banks providing the wallet service will hold personal data on end users but the Bank and government will not.

Alongside the Consultation Paper, the Bank published a Technology Working Paper which sets out the Bank’s initial thinking on the technological architecture and 6 design considerations (such as privacy, security, resilience, energy usage, etc).

The consultation seeks feedback on the conceptual model and the six technology design considerations and closes on 7 June 2023.

In a speech coinciding with the launch of the consultation, the Deputy Governor for Financial Stability at the Bank, Jon Cunliffe, distinguished the proposed CBDC from other cryptoassets, stating that the “digital pound would be a safe, trusted form of money accepted for everyday transactions by households and firms, in the same way as Bank of England notes are today.”

At a glance

Topic Proposal
Will there be a UK CBDC?
  • The decision whether to launch a UK CBDC will be made in the coming years (likely 2025/2026) taking account of developments in money and payments as well as the operational features and technology needed to deliver a digital pound.
  • The focus for the Bank at this stage is to step up the technical development work and proof of concept.
  • The Bank notes the declining use of cash, the increasing use of ‘private money’ (claims on private commercial banks in the form of bank deposits) as well as blockchain currencies/payments all pose a risk to monetary and financial stability and fragmentation of access to money that the digital pound could address.
  • The current proposal focuses on a retail digital pound. The Bank is also exploring a wholesale digital pound for high-value transactions between financial institutions. Those payments are enabled by the Bank’s Clearing House Automated Payment System and its Real-Time Gross Settlement (RTGS) service. Respondents to the consultation are invited to give their views on how a wholesale CBDC could be used to facilitate wholesale payments, including as part of the RTGS renewal and the roadmap for RTGS beyond 2024.
Phased approach  
  • Phase 1: The release of this Consultation Paper and Technology Working Paper marks the end of the current exploratory and research phase, which commenced with the publication of the Bank’s Discussion Paper in 2020.
  • Phase 2: The design phase will identify the architecture for any digital pound and involve private sector innovators in experimentation and proofs of concept. It will end in approx. 2025/26 with a decision on whether to proceed to the build phase.
  • Phase 3: The build phase would start in 2025/2026 at the earliest (once the design phase is completed). The digital pound would only be launched if the build meets the government’s exacting standards for security, resilience and performance.
Public-private partnership
  • Platform Model: The Bank would issue digital pounds and host the core ledger and an application programming interface (API). Transactions would be recorded in a core ledger.
  • Regulated private firms, Payment Interface Providers (PIPs) and External Service Interface Providers (ESIPs), would access the core ledger via the API.
  • These regulated private sector firms (i.e. the PIPs and ESIPs) would deal with all user-facing interactions, including providing pass-through wallets. The private sector firms also undertake Know Your Customer (KYC) and Anti-Money Laundering (AML) checks and handle user data.
  • Users will interact with digital pounds by using their “wallet” with a PIP to see their balance and instruct payments and transfers of digital pounds. It is likely that most people would access the wallet via their smartphone, but there would be alternative options such as a smart card.
  • The digital pound will be denominated in Sterling and seamless exchange with cash and bank deposits will be provided. Holding a digital pound will be a direct claim on the Bank as with cash.
Technology design considerations
  • Privacy: The digital pound will be private in the sense that neither the government nor the Bank would have access to users’ personal data except in limited circumstances (such as law enforcements-related needs in line with the current position). However, the digital pound will not be anonymous because the wallet providing PIPs or ESIPs will hold user information (essentially like current bank accounts). These need the ability to identify and verify users in line with financial crime requirements.
  • Security: Managing security risk is critical for the Bank. Cryptographic algorithms, secure access management, layers of security controls etc are all likely to be deployed to ensure a comprehensive security assurance programme.
  • Resilience: Resilience to disruption is key. The ambition is for 24/7/365 availability with a target uptime (when the system is available and operational) of close to 100%. The Bank is likely to rely on containment and redundancy mechanisms to achieve resilience.
  • Performance: The Bank estimates a performance level of approx. 30,000 transactions per second may be the necessary level of performance. As further use-cases develop, this need could rise to 100,000 transactions per second. To achieve this, the system will rely on techniques such as horizontal scaling, multi-destinational payments and off-line payments
  • Extensibility: The digital pound system will need to allow for new functionality to be added without impairing system functions. The Bank will consider open-source components and composable architecture.
  • Energy Usage: The digital pound infrastructure will also need to be energy efficient and designed in a way which minimises any impact on the environment and assists with reaching net zero by 2050.
Illustrative conceptual model
  • Core Ledger: The core ledger may be a traditional centralised database or may employ Distributed Ledger Technology (DLT).
  • Analytics: The Bank may need to collect aggregate data to undertake economic and policy analysis; as well as operational metadata for analysis of system status and performance. Both sets of data will be anonymised held via a separate data platform.  
  • Alias Service: An alias service would use identifiers to route transactions between users and enable interoperability with existing payment infrastructure. Aliases will also conceal the wallet identifier.
  • API Layer: The API layer would allow PIPs and ESIPs to access core ledger functionality in order to offer services to users.
  • Devices and Payments: To be effective, the digital pound will need to be widely adopted and available in-store, online and peer-to-peer. Payments will be possible through smart devices, smart cards, ecommerce websites and applications, and existing point-of-sale technologies.
  • Interoperability: Conversion between the digital pound and other forms of money (like cash and bank deposits) is essential. Existing payment infrastructure (e.g. Faster Payments, LINK etc) may be deployed to achieve interoperability.
  • Programmability: Programmable functionality of wallets will be possible with features such as automated payments, delivery-versus-payment and smart contract functionality.
  • Offline payments: Offline payments might be available increasing system resilience in the event of network disruption. However, the risk of double spend and challenges in verifying the authenticity of funds will need to be managed carefully.


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