Press Room

13 Dec 2023

The digital pound: A new form of Marmite for the financial sector?

Crypto Tax & Accounting Technical Director, Dion Seymour, discusses the future of the digital pound and its recent attention from the Treasury Committee, in AccountingWEB. 

Dion’s article was published in AccountingWEB, 6 December 2023.

A committee of MPs has urged the Bank of England to ‘proceed with caution’ when considering whether to commit the country to a digital pound.

Love it or hate it, the development of the digital pound continues. Following the joint consultation from the Bank of England (the BoE) and HM Treasury earlier this year the Treasury Committee (the Committee) has now released their view on a “digital pound”.

Perhaps tellingly, the report is titled “The digital pound: still a solution in search of a problem?” with the committee concluding that the development of a Bank of England retail digital pound should ‘proceed with caution’.

To recap, a digital pound is a digital version of Sterling issued by the BoE and is also called a central bank digital currency (CBDC). The report succinctly sets out the difference between different forms of money and that there is significant interest in CBDCs, with 130 countries exploring a CBDC representing 98% of global GDP. A digital pound would not, certainly in the short term, replace physical cash and would exist alongside it following any introduction.

The Committee’s report identifies very few benefits which are outnumbered by the risks and challenges. The key concerns will not come as a surprise to followers of this topic, namely:

  • Privacy: As a digital pound will not be anonymous, the Committee states there needs to be “strong safeguards” put in place to protect privacy and to ensure that law enforcement cannot use BoE data beyond what is already permitted.
  • Data protection: Users may not know (and some might not care) how their information may be used. Therefore, the Committee considers it vital for it to be transparent about how user data would be collected and used.
  • Financial stability: Most money in circulation is from commercial banks. The Committee highlighted the risk that if savers start moving their money from commercial banks to the BoE, particularly at times of financial stress, this could accelerate bank runs. Therefore, the Committee recommended that the maximum investment limit be lower than that proposed by the BoE.
  • Financial inclusion: Increasing access to banking facilities has previously been raised as being a benefit. However, the Committee cast doubt on this, commenting that there is a risk that a digital pound could result in “accelerating the demise of physical cash”.
  • Will the Digital Pound have interest? There are still no plans for the digital pound to pay interest. However, interestingly, the Committee recommended that this be kept under consideration to ensure that any design does not prevent interest being paid in the future.

The Committee stated that “the Government and Bank of England must resist the temptation to believe that a digital pound can “fix problems it can’t”. It also stated it supports further consultative work on the design of a digital pound to enable it to be launched, but only if the benefits outweigh the risks.

The story about the introduction of a digital pound is not over, however, with the government committing to a vote in Parliament before any introduction it would be fair to say that more convincing benefits need to be found.

Photo by Traxer on Unsplash.

Dion Seymour

Dion is a Director with extensive experience in all aspects of the taxation of crypto assets. He was formerly the crypto asset policy and product owner at HMRC.

Email: Dion Seymour