Privacy would be a “core design feature” of the digital pound, officials from the Bank of England and the Treasury confirmed today, as the two institutions tried to assuage public concerns around privacy.
Over 50,000 people responded to the consultation on the introduction of the digital pound, also known as ‘Britcoin’, with the Bank noting that there were widespread concerns about the possible consequences for privacy.
“Just as with other forms of money, ensuring trust in a digital pound issued by the central bank would be essential,” the Bank said. “Privacy would be a core design feature.”
The response paper said that the digital pound would not be introduced without primary legislation and that legislation will ensure the government cannot access users’ data.
“Legislation introduced by the Government for a digital pound would guarantee users’ privacy,” the paper confirmed.
The central bank committed to exploring “technological options” that would make it impossible for the Bank to access personal data through its core infrastructure.
“We will always ensure people’s privacy is paramount in any design, and any rollout would be alongside, not instead of, traditional cash,” Economic Secretary to the Treasury, Bim Afolami, said.
The two institutions also ruled out “central bank-initiated programmable function,” which would put conditions on how a digital pound could be used.
However, private sector actors could still offer programmable money functions.
The digital pound is a form of central bank digital currency (CBDC). Unlike existing digital payments, a CBDC is created by the central bank. It is not intended to replace cash.
The Bank has previously suggested it is “likely to be needed in future” as digital payments become ever more important in the economy. The Bank said it was still too early to decide whether to introduce a digital pound, but said further preparatory work is justified.
Alongside concerns around privacy, many in the banking sector have raised concerns about the possible impact on financial stability.
As a digital pound is risk free, banks are concerned that consumers will be incentivised to move deposits into digital pound accounts. They also worry its introduction could accelerate bank runs.
To mitigate concerns that banks will lose access to lots of deposits, officials at the Treasury and the Bank have proposed a temporary limit on holdings of between £10,000 and £20,000.
The reported noted that there was a divergence of views on whether this limit was appropriate.
The majority of banks favoured limits around £3,000 or £5,000, citing the risk of rapid deposit outflows. By contrast fintech firms agreed with the proposed limit or “preferred no limits at all” to support widespread adoption.
Although there was some disagreement about the exact level of the limit, the report noted there was “wide agreement” that there needed to be limits during the introductory period. The Bank confirmed that it would proceed with the £10,000-£20,000, although it would be kept under review.
Officials at the Bank will now proceed to the next stage of the digital pound, which will focus on “experimentation and proof of concept”. A decision is expected in 2025 or 2026.