A digital pound could be launched in the U.K. as part of the country’s effort to introduce better regulation to the crypto industry. Jeremy Hunt, the Chancellor of the Exchequer, announced that the government will begin exploring a central bank digital currency in the coming weeks.
Hunt said that the U.K.’s financial regulatory framework “must support innovation and leadership” in emerging areas of finance, which include cryptocurrencies and digital assets.
“To ensure the sector is prepared to embrace and facilitate the adoption of cutting-edge technologies, the government is bringing forward a consultation in the coming weeks to explore the case for a central bank digital currency — a sovereign digital pound — and consult on a potential design.”
Hunt noted that the Bank of England will also release a “Technology Working Paper” with the technical considerations and potential build of the digital pound.
While exploring a digital pound, the government will also work to establish a safe regulatory environment for stablecoins. Hunt said that stablecoins “may be used for payments” and the government needs to ensure it has the necessary powers to bring more crypto assets activities to the country.
Furthermore, the government will also expand its Financial Services and Markets Bill, allowing registered investment managers to deal with cryptocurrencies. This will enable various cryptocurrencies to be included in the portfolios of overseas funds managed in the U.K. The change will be implemented by the end of the year, Hunt said in his statement.
The statement further cements the Bank of England’s view of the importance of a central bank digital currency. Many Bank of England officials, led by its Deputy Governor Jon Cunliffe, have been vocal about the need for a digital pound. Proponents of CBDCs argue that a digital pound would provide consumers and businesses with a form of cash backed by the central bank but usable in digital transactions.
The Bank of England argued that the sharp drop in the use of cash has left money in the control of “private companies” that don’t have the “government guarantee carried by banknotes and coins.”
However, there is a strong current of those opposing a CBDC within the U.K. government. The Economic Affairs Committee, a U.K. parliamentary panel, has been arguing against a CBDC saying it could threaten both the government and its citizens.
In a report published in January 2022, the Committee said there was no convincing case for why the U.K. would need a digital pound. And while the report managed to find some advantages to a central bank digital currency, it concluded that it could present significant challenges to financial stability and the protection of privacy.