Bank of England considers shelving plans for a digital pound

[LONDON] Bank of England (BOE) officials are mulling whether to set aside plans to create a digital pound for households amid growing scepticism over the project’s benefits, the latest sign of dwindling support for state-backed digital currencies globally.

The BOE has been privately urging the banking industry to instead accelerate payment innovations that could result in similar benefits without the creation of a central bank digital currency, or CBDC, for consumers, according to sources familiar with the matter.

The sources said the central bank wants to be in a position to launch a CBDC if it is eventually warranted. But it is willing to step back if private businesses continue to roll out new electronic-payment technologies, and its staff believe the gains from pressing ahead with a digital pound launch have diminished. The BOE declined to comment.

The bank’s latest approach marks a shift in its tone from only a few years ago, when BOE and Treasury officials said they thought a digital pound was “likely” to be needed. They will make a joint decision on whether to push ahead with the project once the current “design” phase is complete.

BOE governor Andrew Bailey recently voiced his doubts publicly and has put his focus on banks stepping up a push to tokenised deposits, which is seen as a way to create a stable bridge between traditional finance and digital assets.

The change reflects the dwindling interest globally in the creation of state-led digital currencies as stablecoins and other payment innovations emerge. The Trump administration has blocked further work on a CBDC in the US, citing financial stability concerns, and last month South Korea’s central bank halted its digital currency pilot programme. In contrast, the European Central Bank is still pressing ahead with the launch of a digital euro.

Recent research by BOE staff found that the benefits from launching a CBDC are diminishing and senior officials have stepped back from chairing a committee that discusses the project with the private sector in a possible sign of declining interest.

The BOE’s project is currently at the design phase, putting the UK behind many other jurisdictions, and the central bank and government have yet to make a final decision on whether to launch a CBDC.

But the potential creation of such a digital pound has raised concerns about consumer privacy and destabilising impacts if investors flooded into state-backed digital currencies as a haven during times of crisis, syphoning cash away from other corners of the financial system.

In the UK, the nascent project has also attracted the attention of conspiracy theory groups, faced attacks from lawmakers and prompted over 50,000 responses during a request for public comments.

In June, Bailey said he is not yet “convinced that we need to create new forms of money”. While he has signalled his backing to create a wholesale CBDC for transactions between financial institutions, he has been cooler on one aimed at households.

Even so, Bailey has raised concerns over the emergence of stablecoins, particularly the risk that one launched by either a foreign country or big tech firm could gain popularity in the UK and undermine the public’s trust in the traditional currency. That could prompt the BOE to move forward with its own alternative.

Absent that, some in the central bank have seen waning gains from a CBDC. A BOE paper published late last year warned that the benefits have diminished considerably in recent years as consumers increasingly use existing online payment technologies.

BOE deputy governor Sarah Breeden and the Treasury’s director general for financial services Gwyneth Nurse have both recently stepped back from chairing the CBDC Engagement Forum, which brings together officials, the banking sector and researchers, opting to send less senior staff instead. Minutes from the latest meeting, which were published in April, said this was due to it “entering a more detailed phase of design work.” BLOOMBERG