Digital pound could be on the way

At the beginning of April 2023, The Royal Mint announced that plans to produce an NFT (non -fungible token) had been dropped.

The government backed idea, ordered by then Chancellor Rishi Sunak in April 2022, is now not going ahead, after a consultation with the Treasury.

NFT’s are assets in the digital world which can either be bought or sold, but have no physical form. NFT’s are out for now, but could a digital pound be on the way?

We’ve asked Alex Fletcher, Paraplanner, to share his thoughts on the concept of a digital pound, and what the world of digital currencies could potentially look like.

Here’s Alex with a penny for your thoughts…

It seems we are making more and more things digital nowadays- tax, bookkeeping and now a digital pound could be making an appearance sooner rather than later.

The Treasury and the Bank of England are currently going through a consultation process of creating a digital pound which, if the proposal goes through, would be interchangeable with cash and bank deposits.

Below I’ve outlined what the concept of a digital pound really means and any potential risks that could come from using it, as well as exploring how other countries around the world are developing digital currencies of their own.

What is a digital pound?

A digital pound – or the concept of it at this stage – would be a new type of currency issued by the Bank of England (BoE). Households and businesses would be able to use it for everyday payments in-store, online and to friends and family, and access it through a digital wallet on their smartphone or a smartcard.

It will be a new form of sterling, which would be interest free, with a promise from BoE to not have a negative interest rate which would be equivalent to a charge to hold money. One digital pound would be the equivalent to one physical pound coin.

Brits would be limited to £20,000 each if the country decides to go ahead with a digital currency. Any funds above the cap would be swept into a customer’s commercial bank account, as a digital pound would not be a means for storing wealth, Jon Cunliffe, Deputy Governor of the BoE stated in February this year.

Is it safe?

It’s paramount to be able to access money that is safe and easy to use as we progress into the digital age. Like anything new, and especially when transformed into a digital format, they do impose risks.

A huge consideration that needs to be measured is ensuring the privacy and data protection of those who would use it. The digital pound would not be anonymous as there is the ability to identify and verify users. There needs to be a compulsory measure to help prevent any financial threats or crimes.

The logic behind the digital pound however is to allow users to be in control of their data, and this will be considered when in the design process of the digital pound.

The benefits of going digital

Perhaps obvious, but going digital with the pound coin does mean that it could be better for the environment. It wouldn’t need to use the same energy-intensive methods that minting coins and printing notes require.

The most attractive trait of going digital with your pennies is that it is a highly efficient and convenient way to pay for things. We’re already accustomed to the likes of Apple Pay or Google Pay, which require a simple click on your phone to initiate, and the digital coin would follow the same process, and sit in either wallets on smartphones or in specially designed smart cards.

For those who heavily rely on cash however, this could be an issue. Despite having more of a risk due to counterfeiting, not everyone can adapt nor have access to be able to utilise digital currency, which at this stage makes the digital pound less inclusive. It has been stressed by the BoE however that the digital pound would complement cash, rather than be a physical replacement for it.

Around the world

The U.K. isn’t the only country who are exploring options for digital currencies. China is already testing digital yuan in major cities, meanwhile the European Central Bank (ECB) is collaborating with national centre banks across those who use the Euro at the possibility of introducing a digital version.

The Bahamas, Nigeria, and the Eastern Caribbean Currency Union have already rolled out digital currencies, with the use of a digital wallet in full swing.

Countries who like the U.K. are looking into the development of digital currency include India, The United States of America and the Eurozone.

Final thoughts

Although a few years off, it looks like the digital pound coin will be the next ground-breaking project for currencies globally. Whilst it imposes a smarter and convenient way to pay for household items and services, processes need to be put in place to ensure the data protection and safety of those who will use it.

We’re here to help

If talks of the pound going digital has got you thinking about your finances, we are here to help. To speak to one of our specialist team, please call 01782 345100