March 14, 2023

Digital Pounds - Part 1: Introduction of a new CBDC

Last month, HMT and the BoE released a consultation on The Digital Pound, a Central Bank Digital Currency (CBDC) that would allow individuals to hold money as a direct claim on the central bank, like banknotes. Up to this point CBDC has only been available to some financial institutions, like banks, where they are known as reserves. In contrast, all electronic money held by individuals is actually a promise made to them by a company (again, usually a bank) that they will be repaid, rather than a promise by the central bank itself. The exception is certain cryptocurrencies, which is one of the reasons for their rise to prominence. For the most part, the exchange of private money, that is claims on banks, for goods and services causes no issues; we all trust that we can exchange these claims for cash whenever we choose to do so. However, with banknote use in freefall, HMT and the BoE worry that this link between government, or public, money and our daily lives will be severed. The Digital Pound is the first step of their proposed response. 

The consultation paper reads like HMT have decided to progress with the scheme and now need to go through the process of seeming to weigh up options. No decision has yet been taken, but the consultation includes plans for next steps — just in case. Some risks are considered and there is real analysis to differentiate between different models of CBDC. Nevertheless, HMT have made almost no effort to present the case for why government might not wish to do this, or even anticipate the challenges that such opponents might make. The biggest challenge, the impact on bank balance sheets and financial stability, is buried in Annex 2. 

Instead, the 116 pages weave together description, advocacy and mild boosterism without truly stating what seem to be the underlying motives: this is exciting and new and, please, we want to stay relevant. 

—

This is Part 1 of a submission in response to HMT’s and BoE’s public consultation. Part 2 is available here.

‍

Related posts

Buying Generative AI in Government

PUBLIC and Paradigm Junction have teamed up to build this practical guide for public buyer and suppliers to effectively navigate the process of 'Buying GenAI'. Examining critical factors of the procurement process - defining scope, securing finance, evaluating suppliers, defining IP, managing contracts - this report provides usable insights into what makes GenAI different and how Government can engage with it confidently.

Read more
Computers aren't supposed to be able to do that

18 months ago he would have been right. To me, it had stopped being remarkable they now can.

Read more
Introduction to Futures and Foresight for Emerging Technologies

No one is sure about how the capabilities of AI will develop, let alone how business, government and society will respond to them. But this doesn’t mean that you should stand still. Tools exist for helping decision makers make smart choices in the face of uncertainty about the future, where traditional forecasts are liable to falter.

Read more
Apple Vision Pro - Seeing The World Through A New Lens

The Vision Pro isn’t only an AR/VR play from Apple - it’s a first bid to equip us with the tools we will want to be using in the future world of work.

Read more