1 February 2024

An update on a UK CBDC: Bank of England and HM Treasury respond to consultation

On 25 January 2024, the Bank of England and the UK Government (through HM Treasury) published a response to the consultation (the “Consultation Response”) that was launched last year on a UK retail central bank digital currency, i.e. a digital pound issued by the Bank of England. Although the Consultation Response does not confirm whether or not a digital pound will ultimately be introduced, it does provide an update on the proposed approach and the next steps on the agenda to the potential launch of a digital pound.


Views from Hogan Lovells Global Digital Assets and Blockchain practice

Commenting on the Consultation Response, John Salmon, Head of the Hogan Lovells Global Digital Assets and Blockchain Practice and Lavan Thasarathakumar, Senior Advisor in the Global Digital Assets and Blockchain Practice provided their views:

“The fact that the Bank of England received over 50,000 responses to last year’s consultation is testament to the level of public interest in – and perhaps the controversial nature of – the prospect of a digital pound. The Consultation Response notes that privacy remains a key concern among respondents, thus bringing digital trust to the fore, a concept which we explored in our recent Whitepaper. In the context of a digital pound, it will be vital for such concerns to be overcome in order to ensure adoption, and the Bank will need to be diligent in reassuring the public that measures will be put in place to protect users’ rights to privacy. While enshrining such principles in primary legislation is a step in the right direction, additional steps will need to be taken to build trust including careful design and testing of any proposed CBDC system, and further consultations.

It will also be important for the UK to continue to collaborate globally, and to monitor shared findings relating to CBDCs abroad. For example, the BIS Innovation Hub is undertaking a number of relevant projects – of particular interest is ‘Project Aurum’ which is entering into a new phase in 2024 to focus on privacy of payments in the context of designing retail CBDC systems.

There is still a long way to go in terms of the journey to launching a CBDC in the UK. The Consultation Response states that the decision on whether or not to begin the build phase of a digital pound will be made at the conclusion of the design phase, which is not  expected to take place until 2025/2026. Additionally, more deep-seated issues will likely arise over the course of the next few years, particular from an economic and policy perspective, which will require further analysis and public consultation. The Bank is already cognisant of the potential impact that a digital pound can have on monetary policy, such as the knock-on effects that an interest-paying digital pound could have on the pass-through of Bank Rate changes to banks’ savings rates for retail customers, and has confirmed in a response to the Treasury Committee (also published on the same day as the Consultation Response) that, at least at the time of launch, a digital pound would not be interest-bearing – and any decision to revisit this approach to remuneration would be preceded by a review with full consultation. Ongoing public-private partnerships and engagement with relevant stakeholders will therefore be crucial to the successful development and adoption of a digital pound in the long term.”


In February 2023, the Bank of England (the “Bank”) and HM Treasury (“HMT”) sought feedback from the public via a consultation (the “Consultation Paper”) on a set of design proposals for a retail central bank digital currency (“CBDC”), a new form of central bank money which would be denominated in sterling and be underpinned by a core infrastructure (including a ledger) to be developed by the Bank – see our previous article in which we covered this particular development.

The Bank and HMT initiated the consultation with the view that a digital pound is likely to be needed to keep pace with developments in the digital payments landscape and future payment needs. In particular, new innovations in the digital payments space such as in relation to distributed ledger technology, smart contracts and atomic swaps will give rise to new forms of digital money, such as stablecoins and tokenised bank deposits – and regulatory frameworks are being developed in response. Legislative changes under the Financial Services and Markets Act (FSMA) 2023 allowed “digital settlement assets” such as stablecoins to be brought within the UK regulatory framework. In October 2023, HMT published an update on the Government’s policy concerning the regulation of fiat-backed stablecoins; and in November 2023, the Bank, the Financial Conduct Authority (“FCA”) and the Prudential Regulatory Authority (“PRA”) published multiple papers regarding the regulatory regime covering stablecoins – please see our article for an overview of these publications.

It is worth noting that the Bank and HMT have been exploring the case for a digital pound since 2020. The Bank published a Discussion Paper on CBDC in March 2020, and from mid-2021 to the end of 2022, the Bank and HMT undertook the first phase of the digital pound project, which focused on research and exploration, and are moving into the “design phase” (as announced in the Consultation Paper) which will focus on technical and operational considerations. Other initiatives include the development of the CBDC Taskforce, the CBDC Engagement Forum, and the CBDC Technology Forum.

In this Consultation Response, the Bank and HMT continue to be of the view that it is too early to decide whether or not to introduce a digital pound – however, the Bank and HMT consider that the preparatory work done to date is critical to understand future changes in the payments landscape, and will also materially reduce the lead time in the event there is a decision in the future to introduce a digital pound.

The publication of this Consultation Response is accompanied by a Response to the digital pound Technology Working Paper, i.e. a response to a working paper on technology design considerations for the digital pound which was launched at the same time as the Consultation Paper.

Trust and the Digital Pound

Importantly, the Bank and HMT acknowledge in the Consultation Response that public trust is a prerequisite for the successful adoption of a digital pound. (Please also see our Digital Trust Whitepaper which discusses the significance of trust in the context of digital payments.) This Consultation Response seeks to provide further reassurance to the public in terms of the measures that will be taken to govern a digital pound, including by highlighting the following:

  • Primary Legislation: Given the potential significance of introducing a digital pound, respondents to the Consultation Paper noted that Parliament should have the opportunity to contribute to the decision to introduce a digital pound. The Consultation Response draws attention to the Government’s commitment to introducing primary legislation prior to the launch of a digital pound – Parliament would have the opportunity to vote on the design and regulatory framework of a digital pound, during the passage of primary legislation.

  • Privacy and data protection: The Consultation Paper had set out the Bank and HMT’s commitment to ensuring a digital pound would be at least as private as current forms of digital money (such as money in a commercial bank account or e-money). The Consultation Response further confirms that (a) the Bank and the Government would not access users’ personal data through the Bank’s core infrastructure underpinning the digital pound, and that future legislation would guarantee users’ privacy; (b) the Bank is committed to exploring technological options that would prevent the Bank from accessing personal data through such core infrastructure, and (c) a working group will be launched as part of the design phase of the digital pound, which will be dedicated to addressing privacy issues.

Additionally, private-sector digital pound wallet providers (i.e. Payment Interface Providers or PIPs) which would have direct commercial relationships with users (in accordance with the “platform model” – see our previous Engage Article for further details) would be required to operate within a robust legal and regulatory framework to support users’ control of their personal data. In future, the Bank and HMT will clarify the limited scenarios where access by authorities to user data being held by PIPs may be required (e.g. for law enforcement purposes).

For more on the privacy aspects of the digital pound's design phase, see 'Privacy' under 'Design of the Digital Pound' below.

  • Users’ control over their money: The Consultation Paper stated that neither the Bank nor the Government would program users’ money by embedding rules on how or when they could spend it. The Consultation Response further clarifies that future legislation will guarantee that the Bank and the Government would not program the digital pound, and technological safeguards against programmability will be explored during the design phase.

  • Safeguarding access to cash: Respondents to the Consultation Paper noted the importance of continuing to preserve access to cash, even in light of the decline in its use for payment purposes. The Consultation Response emphasises that a digital pound would complement, not replace, cash or other forms of digital payment, and draws attention to the legislative actions already taken to protect access to cash in law, including the FSMA 2023 where the Government legislated to give both the FCA and the Bank certain powers and responsibilities to ensure continued access to cash. Take a look at this Engage article for more on two recent FCA and Bank consultations relating, respectively, to maintaining access to cash and wholesale cash distribution market oversight which follow on from the FSMA 2023 measures.

Design of the Digital Pound

The Consultation Response also responded to the feedback received regarding the proposed design of a retail digital pound which will be further explored during the design phase of the digital pound project. Some key takeaways include the following:

  • The payments landscape: Responses to the Consultation Paper provided a range of views on how a digital pound might fit in the future payments landscape, and some respondents noted the challenges of a retail digital pound coexisting with private-sector digital assets. In response, the Bank and HMT reiterate that they will continue to monitor payment trends in the UK and abroad in considering whether or not to launch a digital pound, and that they will continue to collaborate closely with the private sector.

In addition, some respondents favoured a wholesale CBDC (rather than a retail CBDC), which would be complemented by private-sector alternatives to a retail digital pound (e.g. in the form of tokenised bank deposits). The Bank and HMT consider that the Bank's renewed  RTGS (the existing wholesale settlement system) would be a quicker way  to deliver the benefits of the new technology rather than developing a new wholesale CBDC platform. This Bank webpage provides more information on the on-going RTGS Renewal Programme. However, the Bank will work closely with industry on the ideas for tokenised deposits.

  • The platform model: Based on the feedback received, the Bank and HMT will continue to develop the platform model of the digital pound in the design phase.

  • Privacy: As part of the design phase, the Bank and HMT will continue to explore how PIPs could offer tiered access to users (i.e. where functionality is based on the amount of identification a user is willing to provide), as well as experiment with emerging types of privacy-enhancing technologies. The Bank is also assessing whether it is possible to design a privacy-preserving “alias service” which would exist outside of the Bank-managed infrastructure and would also limit the sharing of personal data between PIPs and end-users – this technology is described further in the Technology Working Paper response.

  • Programmable payments: Although the digital pound itself would not be designed to enable central bank-initiated programmable money, the Bank will continue to engage with stakeholders to further understand the functionality (including for programmable payments) that PIPs and users may desire, and to assess the infrastructure that is needed to support such features. While smart contracts would not be hosted on the Bank-managed core ledger, the Bank will consider the necessary requirements of its technological interface with the private sector, so as not to impede the private sector’s ability to build and host smart contracts.

  • Holding limits: The Bank and HMT are inclined to proceed with a proposed holding limit on individual holdings within the range of £10,000 to £20,000 – however, the Bank will continue to engage with the financial services industry to refine this range. The Consultation Response also indicated that non-UK residents would be able to access a digital pound on the same basis as UK residents. Further work is required to determine the appropriate holding limits for resident and non-resident corporates.

  • Financial inclusion: The Consultation Response highlights that the decision to introduce a digital pound will only be taken if the Bank and HMT, after undertaking the relevant impact assessments, technology experiments, and engaging with stakeholders via working groups, are adequately assured that a digital pound can be designed in an equitable and accessible way.

The Design phase: Design principles

The design phase is ongoing, and is expected to focus on the development of the operational, functional and technology model for a digital pound. This will provide the basis for the future decision on whether or not to move into the “build phase”.

Based on the feedback received on the Consultation Paper and the Technology Working Paper, the Consultation Response sets out a set of design principles agreed between the Bank and HMT to guide the work in the design phase. The digital pound should be designed to: 

  1. be reliable and secure;
  2. guarantee user privacy and control;
  3. support innovation, such as by lowering barriers to entry to promote competition in payments and provide a public infrastructure that supports innovative services;
  4. be interoperable with other forms of money;
  5. be adaptable and scalable, such as to support use cases we cannot currently anticipate.
  6. be inclusive and attractive;
  7. be energy efficient—the digital pound should support the Government’s net-zero plans and be at least as energy efficient as existing payments infrastructures.

Next steps

The design phase is expected to conclude in 2025/2026, and will culminate in a decision on whether to proceed to the build phase of the digital pound project. The Consultation Response points out that the 'journey towards issuing any digital pound must involve a conversation about the future of money', with private sector payments innovations changing money and how it's used. There is reference to last year's government Future of Payments Review (see this Engage article), with acknowledgment that work on a potential digital pound is just one part of the wider work on innovation to ensure that the UK remains at the forefront of payments technology. As mentioned under 'Trust and the Digital Pound' above, the Bank and HMT emphasise that public trust 'is essential to this process'.

During the design phase, the Bank and HMT will embark on a programme of engagement with the public, in order to develop public trust and collect relevant feedback. In particular, this will include seeking expert input on the issues around privacy via external forums, as indicated in the HMT and the Bank’s response to the Treasury Committee (also published on the same day as the Consultation Response). The Bank and HMT will also carry out assessments on the costs and benefits (from a financial, economic and wider societal perspective) of building and running a digital pound.

As mentioned above, the Government has committed to introducing primary legislation before the launch of a digital pound – such primary legislation will be preceded by further public consultations prior to being introduced. 


Authored by John Salmon, Lavan Thasarathakumar, Christina Wu, and Virginia Montgomery.