Privacy concerns slowing UK decision on digital cash

The Bank of England (BoE) and the nation’s finance ministry disclosed their intention to prolong preliminary efforts following a comprehensive public consultation that garnered 50,000 views, predominantly expressing reservations about privacy.

In a joint statement, the BoE and the finance ministry clarified: “No final decision has been made to pursue a digital pound - also called a central bank digital currency”. They added that the institutions have advanced to the design phase, with the build phase pencilled in for the middle of the 2020s.

Although UK Prime Minister, Rishi Sunak was an early proponent of the concept, urging the BoE to begin the project in 2021, things are unlikely to get moving on the scheme until the decade’s end, even if approved.

The proposed digital pound, mirroring physical cash in value, could be held by Britons up to limits ranging from £10,000 to £20,000, with no interest accrual. Bank advocates had pushed for a lower limit of £3,000 to £5,000, mainly due to concerns about potential fund outflows from standard bank accounts.

Towards the end of 2023, legislators in Britain maintained that there still did not exist a case for digital cash. Privacy anxieties are similarly preventing other central banks, such as the European Central Bank and the US Federal Reserve, from committing to progress with the technology.

In the EU, new laws to support a digital euro have also been waylaid by privacy worries, which led to the EU’s financial services chief emphasising that the developments are not part of a broader “Big Brother” plan.

The UK asserts that a digital pound would be private but not anonymous, allowing authorities to monitor transactions suspected of money laundering or financing terrorism. 

Stressing that it would not take the place of physical cash, the BoE and government have emphasised continued public access to anonymous payment options. The UK government has also pledged to conduct public consultations and introduce fresh legislation to safeguard privacy if the project advances.

Know the risks

Improved innovation, cheaper transaction costs and stronger safeguards against financial crime are just some of the benefits that digital money could bring. But critics argue that such currencies can be volatile to trade and may, in fact, be more susceptible to hacking activity.

The issues are explored next month at #RISK Digital, where experts will discuss challenges and opportunities that governments face when it comes to galvanising global economies.