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Bank of England won't call it Britcoin but says digital pound 'likely to be needed in future'

Technical paper says blockchain probably isn't up to the job

The Bank of England and HM Treasury have declared the UK will probably need a digital version of the pound at some point, and commenced a consultation process to advance plans for the currency so the nation is prepared if a decision is taken to greenlight what's jokingly been called "Britcoin".

A consultation paper describing the central bank digital currency (CBDC) states that the two abovementioned institutions have – as The Register has reported – already considered Britcoin. Based on those efforts, they "judge that it is likely a digital pound will be needed in the future."

"It is too early to commit to build the infrastructure for one, but we are convinced that further preparatory work is justified," the paper states.

It will have intrinsic value and not be volatile, unlike unbacked cryptoassets

A separate digital pound working technology working paper outlines the most Register-adjacent aspects of that work – including the need for a central ledger to store user balances.

In its consideration of how best to build that ledger, the paper's authors might find themselves irritating blockheads with the following observation:

Distributed ledger technologies and blockchain-based solutions might have advantages in guaranteeing consistency and resilience, but they also present privacy, scalability and security challenges. Centrally governed, distributed database technologies might achieve the ledger requirements without such limitations. Therefore, these technologies might be appropriate for the core ledger design.

The technical paper also ponders whether offline payment functionality will be needed to enhance resilience, a desire to integrate with existing payment systems (including peer-to-peer exchanges of physical cash), and programmability features that allow payment services providers and external service interface providers to add functionality to the CBDC.

But that sort of thing is years away – if the digital pound ever comes into existence at all. The documents and accompanying announcement point out that no decision to proceed with the currency has been made at this point.

If Britcoin is ever greenlit, the documents suggest building it will require several years, and that great care will be required to ensure the public understands that the currency affords the same privacy as cash.

The overall theme of the announcement and accompanying documents is that the UK can't dismiss CBDCs, because its trading partners and allies are already working on their own equivalents. China's digital yuan is already circulating widely and India debuted the digital rupee in December 2022.

"As the world around us and the way we pay for things becomes more digitalised, the case for a digital pound in the future continues to grow," reads a canned quote from Governor of the Bank of England, Andrew Bailey. "A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability."

But not a way to replace paper money. Not instantly, anyway. The announcement states that "A limit on individuals' holdings would apply at least in the introductory phase" to "strike a balance between encouraging use and managing risks, such as the potential for large and rapid outflows from banking deposits into digital pounds."

And there's also plenty of mentions that the digital pound would not be any sort of cryptocurrency or tokenized asset.

"Unlike cryptoassets and stablecoins, the digital pound would be issued by the Bank of England and not the private sector," the announcement reads.

This means that it will have intrinsic value and not be volatile – unlike unbacked cryptoassets – as there would be a central authority to back it.

"A decision about whether to implement a digital pound will be taken around the middle of the decade and will largely be based on future developments in money and payments," the announcement states, adding that the earliest possible launch time for a UK CBDC "would be the second half of the decade." ®

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