Foreword

Money is central to our daily lives and is at the heart of how the economy works.

Last year, the Bank of England and HM Treasury took a major step in the national conversation on the future of our money, with a Consultation Paper on a proposal for a UK retail central bank digital currency (CBDC). This would be a new form of digital money for use by households and businesses in the UK, known as the digital pound and issued by the Bank of England.

The UK’s financial services sector is world-leading, open, and technologically advanced. Our work on a digital pound is just one part of the Government and Bank of England’s efforts to ensure that the UK remains at the forefront of innovation in money, payments and digital finance. The process of developing the design for a digital pound over the coming years will present enduring benefits for the UK’s digital economy, fostering knowledge-sharing and technical collaboration between the public and private sectors. These efforts are valuable, regardless of whether a decision is ultimately taken to introduce a digital pound.

Today we can pay for transactions and pay each other in many different ways, and that choice is important. People choose what is best for them in that moment. A digital pound issued by the Bank of England would not replace those existing forms of money – cash and the money in our bank accounts – and the means of payments we already use, like debit and credit cards. Indeed, last year the Government enacted legislation to safeguard access to cash across the UK. That said, a digital pound would provide an additional choice for making payments in a way that is safe and secure and fit for the future, whether in person or online or to each other. And building the platform on which a digital pound would operate could unlock opportunities for companies, big and small, to develop innovative ways to pay, ensuring the public has access to leading technologies that make our lives easier. This could make day-to-day payments more convenient, while reducing costs for the businesses who accept them.

The Consultation Paper received over 50,000 responses from members of the public, businesses, civil society and academia. The volume of responses is evidence of how important questions on the future of our money are for individuals and industry alike. We are grateful to everyone who took the time to consider and submit a response. Some of those responses were about our proposed design for a digital pound, and how a digital pound would fit alongside existing and emerging forms of money and payments in the economy. Others raised concerns about important issues such as the potential impact on privacy, access to cash and freedom of choice. The feedback clearly illustrated that, just as with other forms of money, ensuring trust in a digital pound issued by the central bank would be essential.

This publication sets out how that feedback will guide the Government and the Bank of England’s priorities during the design phase of our work on the digital pound, and the further steps we are taking to address the concerns that have been raised. The Government has committed to introducing primary legislation with a vote in both Houses of Parliament before any launch of the digital pound, ensuring full Parliamentary scrutiny. This legislation would guarantee both users’ privacy and that neither the Bank of England nor the Government would control how you spend your money.

We are also strongly committed to maintaining an open and collaborative approach throughout this design phase. The consultation was not the only chance to have your say. Our organisations will be increasing structured engagement with experts from industry, civil society, academics and technical specialists, including open requests for input on a range of important topics, in order to inform what the best design for a digital pound would look like. The Bank of England will undertake experiments with companies to test how a digital pound could work in the real world. We are also committing to further public consultation prior to legislation being introduced.

This publication marks the latest stage in our national conversation on the future of our money – and it is far from the last. At this exciting time of innovation in money and payments, the Bank of England and HM Treasury look forward to working with the private sector, civil society, academia and the public to develop our proposals for a digital pound issued by the Bank of England, so that we stand ready should a decision to build it be taken in the future.

Bim Afolami MP, Economic Secretary to the Treasury

Sarah Breeden, Deputy Governor for Financial Stability, Bank of England

Summary

In February 2023, the Bank of England (the Bank) and His Majesty’s Treasury (HM Treasury) published a Consultation Paper to seek feedback from the public on the design of a ‘digital pound’, a potential UK central bank digital currency (CBDC) for use by households and businesses for their everyday payment needs. The Consultation Paper set out that the Bank and HM Treasury judged it likely that a digital pound would be needed in the future, and so further preparatory work was justified.

The Bank and HM Treasury received over 50,000 responses to the consultation, demonstrating widespread interest in a digital pound and engagement with the proposals. Many respondents to the Consultation Paper raised concerns about the implications of such a digital pound for access to cash, users’ privacy, and control of their money. Recognising the critical importance of building the public’s trust in a digital pound, this Consultation Response seeks to assure respondents of the steps the Bank and HM Treasury are taking to put in place safeguards in the design of a digital pound before any decision is made.

Since the Consultation Paper was published, the Government has committed to introducing primary legislation before launching such a digital pound, ensuring Parliamentary input into any decision to proceed. Reflecting respondents’ feedback to the Consultation Paper, this response makes clear that legislation introduced by the Government for a digital pound would need to provide protections to guarantee users’ privacy and control of their money. The Bank, the Government, the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR) will continue to safeguard access to cash, given the vital role it plays for individuals and in communities.

Respondents will have further opportunities to share their thoughts on a digital pound. In particular, there would be further public consultation prior to the introduction of primary legislation by the Government. And future work and decisions on a digital pound will continue to be informed by dialogue with the public, business, civil society, Parliamentarians, and experts, as the Bank and HM Treasury continue to develop its design. The Consultation Paper was a major milestone in the UK’s national conversation on the future of money. This Consultation Response continues that conversation and sets out the steps that will follow during the design phase. 

Introduction and key messages

The way payments are made, and the type of money used to make them, is changing. Cash is, and will continue to be, important for a large cross-section of society. That is why the Bank, the Government, the FCA and the PSR will continue to safeguard access to cash. At the same time, as the UK economy becomes more digital, electronic payments are increasingly widespread and are now the most prevalent payment method. And new technologies are emerging, often outside the traditional finance sector, with the potential to support new payment services and new forms of money in the future. In that context, since 2020 the Bank and HM Treasury, alongside public authorities in many other countries, have been exploring the concept of retail CBDC. In the UK this would be ‘the digital pound’, issued by the Bank. It would complement physical cash and other payment mechanisms as a new form of digital money for use by households and businesses for their everyday payment needs.

Such a digital pound would help to ensure that central bank money remains available and useful in an ever more digital economy, continuing to support UK monetary and financial stability. It would also provide a public platform for private-sector innovation, promoting further competition, efficiency and choice in payments.

In February 2023, the Bank and HM Treasury published a Consultation Paper to seek feedback from the public on a set of design proposals for a digital pound. In that paper, the Bank and HM Treasury judged it likely that a digital pound would be needed in the future. Rather than assessing that question against the status quo of payments today, it is vital to consider how a digital pound could fit into a future payments ecosystem. That ecosystem will be increasingly digital, with opportunities to harness innovation, but could also be fragmented, if users are tied into particular digital platforms. In light of this, the Consultation Paper explained that, if current trends in payments continue, a digital pound could be a ‘solution’ to two ‘problems’: first, risks to the ‘uniformity’ or ‘singleness’ of money, and second, risks to competition in payments.

To keep pace with future payment needs, such a digital pound would provide an open and flexible platform for the development of future retail payments services by the private sector. It would support continued innovation, allowing the private sector to shape future use cases that could be difficult to anticipate today, for the digital pound and other digital payments.

It is too early to decide whether to introduce a digital pound, but the Bank and HM Treasury judge that further preparatory work is justified to enable us to respond to developments in the payments landscape and to reduce materially the lead time if there is a future decision to introduce a digital pound. The publication of the Consultation Paper marked the start of the design phase of the project. Respondents’ feedback will help to inform the work on the design of a digital pound, in both technology and policy terms. On completion of the design phase around the middle of the decade, the Bank and the Government will decide whether to proceed to build a digital pound. If the decision was taken to do so, a digital pound would only be introduced once both Houses of Parliament had passed the relevant legislation.

Ongoing work on a digital pound helps to put the UK at the cutting edge of the future payments landscape. Even if the Bank and the Government decide not to launch a digital pound, the preparatory work being undertaken during the design phase is critical to understand and prepare for future changes in the payments landscape.

The Bank and HM Treasury received over 50,000 responses to the Consultation Paper from a combination of individuals, private firms, industry representative organisations, civil society groups and academics.

The widespread interest in the digital pound project and the extent of thoughtful and considered engagement provided by the large number of respondents are welcome. Effective public engagement is essential to ensure that any future decisions for a digital pound are robust.

The majority of the responses commented on the broader societal implications of introducing a retail CBDC, such as the future of cash, and the privacy and rights of users of a digital pound.

Trust is a prerequisite for a digital pound. The Bank and HM Treasury sought to provide assurances in the Consultation Paper that measures would be put in place to ensure the public would have confidence in using a digital pound. For example, the Bank, as operator of the core infrastructure, would not have access to personal data. Private-sector digital pound wallet providers, Payment Interface Providers (PIPs), would anonymise personal data before transactions are processed and settled by the Bank. The Bank and HM Treasury would also not pursue government or central bank-initiated programmable functions.

Respondents’ feedback has highlighted that concerns remain. The Bank and HM Treasury are committed to providing the public with the further reassurance they seek. To that end, this Consultation Response sets out a range of measures that would govern a digital pound, if the decision were made to introduce it:

• Before any launch of a digital pound, the Government has committed to introducing primary legislation. This means that a digital pound would only be launched once both Houses of Parliament had passed the relevant legislation.
• Privacy would be a core design feature of a digital pound:
  • The Bank and the Government would not access users’ personal data – and legislation introduced by the Government for a digital pound would guarantee users’ privacy.
  • The Bank commits to exploring technological options that would prevent the Bank from accessing any personal data through the Bank’s core infrastructure.
• The Bank and the Government would not program a digital pound – and legislation introduced by the Government for a digital pound would guarantee this.
• The Government has legislated to safeguard access to cash, ensuring that it would remain available even if a digital pound were launched.

This initial consultation has demonstrated the high level of interest in the digital pound, even at this early stage. There would be further public consultation were the Government to introduce primary legislation in the future.

The majority of feedback received to the Consultation Paper was general, providing views on a handful of aspects on the possible societal implications of a retail CBDC. Fewer respondents chose to provide feedback on a question-by-question basis. For some specific questions, there was a range of views on the design proposal for a digital pound set out in the Consultation Paper. But on balance, and as set out in this paper, these responses confirmed that the proposed design choices were seen as reasonable and well-grounded.

The Bank and HM Treasury judge that the design proposition in the Consultation Paper remains the right basis for further exploration of a digital pound during the design phase, although significant further work is required to flesh out a detailed proposition. To that end, the Bank and HM Treasury have developed a set of design principles (Diagram 1) that will guide the work in coming years, alongside continued engagement with stakeholders. These principles have been informed by the responses received to the Consultation Paper.

Diagram 1: Design principles for a digital pound

The Bank and HM Treasury acknowledge the importance of clearly articulating to the public why a digital pound might be necessary in the future. In addition, the conversation on use cases must be broadened out to consider the specific and applied benefits that a digital pound would bring to consumers, intermediaries and merchants.

The Bank and HM Treasury have also agreed further steps to continue our engagement with stakeholders across society during the design phase, building on the CBDC Engagement Forum (with members from industry and civil society) and the CBDC Technology Forum (with technical specialists) set up in 2021. Last year, the Bank and HM Treasury set up a CBDC Academic Advisory Group (AAG) and launched Digital pound working groups, following the publication of Requests for Information, to explore particular topics in detail.

This external engagement will help to guide the work and decision-making during the design phase. The design phase (Diagram 2) consists of four related workstreams:

• Building on work to date, the blueprint for a digital pound will be developed further, based on the design principles in Diagram 1. This blueprint will develop the core product and technology propositions for intermediaries, merchants and end-users.
• Proofs of concept and experimentation with private-sector support will inform this blueprint.
• As part of the national conversation on the future of money, engagement with the general public, businesses and wider stakeholders will continue, to ensure that debate around the digital pound considers all views, recognising the links to initiatives on protecting cash, and emerging new forms of money such as stablecoins.
• An assessment of the costs and benefits of introducing a digital pound will be conducted, to inform the decision on whether to proceed to the build phase.

Throughout the design phase, the Bank and HM Treasury remain committed to engaging with Parliament and reporting periodically on progress.

Diagram 2: Workstreams of the design phase

This document sets out a detailed summary of the responses received to the consultation and the Bank and HM Treasury’s response to them.

Section 1 explains why the Bank and HM Treasury consulted on the digital pound, setting out the backdrop of a rapidly changing payments landscape, and the key points of the Consultation Paper.

Section 2 describes the composition and nature of the responses received, as well as the methodology used to review and assess them.

Section 3 sets out users’ rights, privacy, and protections with the digital pound: safeguarding access to cash, guaranteeing user privacy, data protection, and control of their money, and committing to a robust decision-making process.

Section 4 summarises the feedback received from respondents on the design of the digital pound consulted upon in the Consultation Paper as the basis for the Bank and HM Treasury’s future work.

Section 5 sets out the next steps for the digital pound project, in light of the responses received and continued engagement with stakeholders. These will focus on experimentation and proofs of concept with the private sector, developing a blueprint for a digital pound based on a set of design principles, engaging with all stakeholders in a national conversation on the future of money, and conducting an assessment of the costs and benefits of the digital pound.

1: Why the Bank and HM Treasury consulted on the digital pound

Money and payments are changing.

Individuals and businesses in the UK use two main forms of money for day-to-day spending – ‘private money’, issued by commercial banks, and ‘public money’, issued by the Bank of England. Private money is typically a claim on a private commercial bank in the form of electronic bank deposits held by households or businesses. Private money is underpinned by the regulation and supervision of commercial banks. Public money or ‘central bank money’, by contrast, is a claim on the Bank, currently available to the public only in the form of physical cash. The words ‘I promise to pay the bearer on demand the sum of five/ten/twenty/fifty pounds’ appear on all banknotes issued by the Bank. Central bank money is financially risk-free in the sense that there is no credit, market or liquidity risk.

A core feature of the UK monetary system is the ‘uniformity’ or ‘singleness’ of money. Uniformity or singleness means that all forms of money – both public and private, bank deposits and cash – are valued equally (‘at par’ or ‘face value’), denominated in a common currency (sterling) and interchangeable with each other. Access to public money supports the uniformity of money. That ensures that households and businesses can be confident in the value of money, regardless of its form and issuer. The ability of individuals to convert their private money holdings into financially risk-free cash – central bank money – on demand, and without loss of value, is the acid test that commercial bank money is safe.

Digital innovation in payments, such as contactless technology, the use of smart phones and digital wallets, has shifted the balance of public and private money used to make payments. Around 95% of the funds held by individuals to make UK payments today are private money, held as commercial bank deposits, and typically spent electronically, such as by bank transfer or debit card. As spending has become more digital, the use of cash for payments has declined, falling from 55% of transactions to 14% over the past decade.^{footnote [1]}

The Bank, the Government, the FCA, and the PSR are committed to preserving access to cash for those who wish to use it. The Government legislated to protect access to cash for people and businesses, and ensure the resilience of the UK’s wholesale cash distribution infrastructure, in the Financial Services and Markets Act (FSMA) 2023. But cash cannot be used in electronic transactions in an increasingly digitalised world.

At the same time, new technologies are emerging that have the potential to affect significantly the nature of money and how it is used for payments – for example, blockchain technology (a network of ledgers organised in a series of ‘blocks’ containing data), smart contracts (which carry out specific actions based on pre-defined terms and conditions), and atomic swaps (where the transfer of one asset occurs if and only if the transfer of another asset also occurs). These new technologies are often being developed by firms outside of the traditional financial sector and are allowing new entrants into the payments market. This innovation in payments means that these technologies may also promote the issuance of new forms of digital money, including by private-sector firms outside of the banking sector, such as ‘Big Tech’ firms.^{footnote [2]} These new forms of privately issued digital money might be in sterling or, if issued abroad but available in the UK, in a non-sterling currency.

Examples of new forms of private digital money might include stablecoins (which aim to maintain a stable value against existing fiat currencies or other assets, typically by holding backing assets) and tokenised bank deposits (tokens issued on the blockchain which are digital representations of bank deposits).

These new forms of money are being regulated to make them safe and suitable for day-to-day payments. Legislative changes under the FSMA 2023 allowed HM Treasury to bring ‘digital settlement assets’ such as stablecoins into the regulatory framework. That legislative change will allow UK regulators, including the Bank, to regulate a broad range of digital asset instruments for everyday payments. In October 2023, HM Treasury published a document that provides an update on the Government’s policy concerning the regulation of fiat-backed stablecoins.^{footnote [3]}

In November 2023, the Bank, the FCA and the Prudential Regulation Authority (PRA) published a cross-authority roadmap on innovations in payments and money. The Bank published a Discussion Paper on the regulatory regime for systemic payment systems using stablecoins. The FCA published a Discussion Paper on its proposed regulatory framework for stablecoins that fall under its remit. And the PRA also sent a letter to bank CEOs that set out expectations for banks issuing different forms of money, including tokenised deposits.

It is difficult to predict how the digital economy and payments landscape might evolve in coming years, and what future payments needs might be. And the emergence and take-up of these new forms of private digital money is uncertain.

The Bank and the Government must be prepared for future changes in money and payments, to ensure that the UK remains at the forefront of innovation. In the future, it is possible to envisage an economy with a range of different payment methods and forms of money coexisting and complementing one another, as is the case today.

The digital pound would be a UK retail CBDC.

In the context of a changing payments landscape, the UK, like many other countries, is exploring the potential for a retail CBDC. In the UK this would be ‘the digital pound’. It would have two core features: first, as a new form of central bank money for use in person and in a digitalised world, and second, as a new payment system delivered as a public-private partnership.

A digital pound would be issued by the Bank and denominated in sterling, for use by households and businesses. £10 of digital pounds would always have the same value as, and be interchangeable with, a £10 banknote. A digital pound would be used like a digital banknote, available to make retail payments both in-person and online. Unlike a bank deposit, a digital pound would be a direct claim on the Bank, rather than on a private commercial bank. A digital pound would be a secure and stable form of money for everyday spending, unlike the high-risk, volatile and speculative cryptoassets that are commonly traded today.

To enable a digital pound to operate as a payment system, the Bank would provide the core infrastructure, including a ledger. Private-sector companies – which could be banks or approved non-bank firms – would be able to integrate into the central digital pound infrastructure and provide the interface between the Bank and users. This means that a digital pound ecosystem would be facilitated by the private sector – while the Bank would operate the core infrastructure, it would not be actively involved in the day-to-day end-user experience of a digital pound. Private-sector firms would deal with all user-facing interactions and be able to develop and offer innovative services using the digital pound.

The Bank and HM Treasury have been exploring the case for a digital pound since 2020.

In March 2020, the Bank published a Discussion Paper on CBDC. From mid-2021 to end-2022, the Bank and HM Treasury undertook the first phase of the digital pound project, which focused on research and exploration. A joint Bank of England-HM Treasury CBDC Taskforce was announced in April 2021 to ensure a strategic and coordinated approach to CBDC exploration by UK authorities, in line with their statutory objectives. This was complemented by engagement with a range of stakeholders. The CBDC Engagement Forum sought input from senior members drawn from financial institutions, civil society groups, merchants, business users and consumers. The CBDC Technology Forum drew input from experts on all technology aspects of CBDC.

The February 2023 Consultation Paper explained that the Bank and HM Treasury judge that a digital pound is likely to be needed in the future, such that further preparatory work is justified.

The culmination of the research and exploration phase was the publication of a joint Bank-HM Treasury Consultation Paper on the digital pound in February 2023. The Consultation Paper explained that, if current trends in payments continue, a digital pound could be a ‘solution’ to two ‘problems’: first, risks to the uniformity of money, and second, risks to competition in payments.

First, without such a digital pound, the general public’s access to, or use of, central bank money could diminish. Moreover, with the emergence of new forms of privately issued digital money, payments could become fragmented if current and future forms of money are not fully interchangeable. That would happen if money used on one digital platform could not be easily used on other platforms or converted into other forms of digital money, locking users into so-called ‘walled gardens’ or ‘closed loop systems’. Those developments could threaten the uniformity of money in the UK and pose a risk to monetary and financial stability, which could undermine trust in money.

Second, markets for digital money present several characteristics that may lead to concentration, such as network effects, economies of scale and scope, and data advantages. These features mean that the emergence of new forms of privately issued digital money could result in the payments landscape being dominated by a small number of firms. That might be benign if it reflects the efficiency of successful firms. But it could also pose a risk to competition, harming consumer choice and the ability of new firms to enter the marketplace. Over the longer term, firms with entrenched market positions might have fewer incentives to innovate.

It is too early to make a decision now on whether to introduce a digital pound because that will depend on how the retail payments landscape evolves in coming years, both in the UK and abroad. But the Bank and HM Treasury consider that a digital pound is likely to be needed in the future to safeguard the UK economy against risks to uniformity and competition in payments, as a complement to regulation.

If introduced, such a digital pound would help to maintain public access to financially risk-free central bank money, ensuring its role as an anchor for confidence and safety in the monetary system, thereby supporting monetary and financial stability, and sovereignty. And by acting as a public-private partnership (with low barriers to entry for the private sector to provide user-facing services), a digital pound could support innovation, choice and efficiency in payments (Diagram 3).

Diagram 3: The Bank and HM Treasury’s primary motivations for a digital pound

The private sector would take the lead in generating innovative use cases.

To keep pace with future payment needs, and support continued innovation, a digital pound would provide an open and flexible platform for the development of future retail payments services by the private sector. This would allow innovators to shape and accommodate future use cases for digital payments that could be difficult to anticipate today. Such innovation could drive further efficiency in the provision of transaction services to merchants and households, enhance users’ payments experience and widen access to services.

Advances in technologies and how they are deployed by the private sector will determine the use cases and functionalities that a digital pound would offer. The Bank and HM Treasury do not seek to prescribe or determine what future use cases for a digital pound might be, although there needs to be confidence that they will emerge.

The experiments carried out over the past year by the London Centre of the Bank for International Settlements (BIS) Innovation Hub in collaboration with the private sector under Project Rosalind give some sense of the variety of functionalities that could be offered to end-users. Examples are ‘Payment on Delivery’, when a buyer pays for goods or services once they are received, and wallet-linking features, to facilitate payment for consumers to enable subscriptions on merchant websites or make recurring bill payments with ‘one-click’ checkouts.

During the design phase, ongoing collaboration with the private sector will present opportunities for business-model and technological innovation, even if a decision is taken not to introduce a digital pound.

While no decision has been taken on whether to introduce a digital pound, the development work during the design phase will allow the Bank to build the necessary skills and put in place the technical capability to introduce a digital pound in a timely manner, were the decision made to do so in the future. Importantly, even if a decision is taken not to proceed to build a digital pound, collaboration with the private sector and technology explorations during the design phase will be beneficial. They will present opportunities for business-model innovation and help to build technology capability in the UK fintech sector. Collaboration with the private sector will also help to inform authorities’ regulation of private digital money, such as stablecoins and tokenised bank deposits. The technology explorations will also deepen the Bank and HM Treasury’s understanding of how such technologies might be deployed in wholesale payments and settlements. Given that digital currency technologies are likely to be significant in shaping the future of finance, the benefits of the design phase can be expected to endure even if a decision is taken not to introduce a digital pound.

The Consultation Paper sought feedback on the design of a digital pound.

On publication of the Consultation Paper, the digital pound project progressed to phase two, the design phase. The work in the design phase will allow the Bank and HM Treasury to evaluate comprehensively the technological feasibility of a digital pound, determine the optimal design and technology architecture, and deepen the Bank’s technology capabilities.

It would not be feasible or practical to explore multiple designs for a digital pound in the current design phase. The focus of the February 2023 consultation was therefore to seek feedback on the core design of a digital pound.

To that end, the Consultation Paper set out various proposed features for a digital pound in relation to a) the platform model and public-private partnership, b) data protection and privacy and c) user experience. These are summarised below in Diagram 4, as set out in the Consultation Paper.

Diagram 4: The model for a digital pound

2: Methodology

Overview of respondents

The Bank and HM Treasury received a large number of responses to the consultation, the majority of which were from individuals.

The consultation invited feedback on twelve questions. The questions generally related to the design of a digital pound that the Bank and HM Treasury would be exploring in the design phase of the project.

The Bank and HM Treasury received a total of 51,529 submitted responses to the consultation. Recognising that individuals vary in their ability and willingness to use online tools, a range of channels was set up for respondents to reply, according to their preference. Responses were received through an online questionnaire, by email and by letter.

Within that total:

• 40,885 responses were received via the online questionnaires.^{footnote [4]}
• 10,603 were received by email.
• 41 were received by letter.

Those responding via the online questionnaire were able to identify whether they were individuals or organisations: 40,330 (99%) of those respondents identified themselves as individuals, while 555 (1%) identified as organisations.

Responses by organisations encompassed large firms, SMEs and sole traders. Organisations using the online questionnaire were able to identify their industry sub-sector. For those that chose to do so, civil society, technology, consultancies and financial services firms represented the largest portion of organisational responses (Chart 1).

Of the 40,885 online questionnaire responses submitted, 566 (1.4%) did not provide an answer to any of the questions and only provided identifier information such as name or email address.

The online questionnaire tool identified that a number of forms were not submitted. Only online questionnaire response forms that respondents formally submitted were included in the review process. Accordingly, unsubmitted forms were not included in the review process.

Chart 1: Organisations that responded to the Consultation Paper online questionnaire

The approach to reviewing responses

The Bank and HM Treasury deployed a combination of manual and computational techniques to review responses.

The Consultation Paper sought feedback on both open and closed questions. As a result, responses varied in terms of their length and complexity. A methodology was developed to meet several criteria:

• Fair and conscientious review of all feedback received
• Robust and rigorous review to capture insights in an objective and consistent way
• Efficient review to ensure a timely response by the Bank and HM Treasury

In light of these criteria, it was judged that a combination of manual and computational techniques provided the most appropriate review methodology.

Manual review consisted of a detailed reading of responses by Bank and HM Treasury specialists. Computational techniques involved the use of industry-standard computational models which process text in a systematic way. Text mining or natural language processing (NLP) techniques were deployed through the use of: (i) counting; (ii) filtering; and (iii) grouping of keywords and phrases.^{footnote [5]} Additionally, techniques were also deployed to support the grouping of topics and the identification of themes and patterns.

Manual reviews were carried out on all responses received via email and letter and a large portion of online responses. Computational techniques were applied to all online questionnaire responses. At no point were the computational models used to remove or exclude responses.

Manual review and computational techniques are complementary. Using them in parallel allowed the Bank and HM Treasury to take advantage of the benefits of both techniques.

Manual review can be used to identify details and nuances in the responses. It is particularly useful to review complex responses. Manual review also serves to cross-check and validate the results of the computational techniques. This means that no interpretation of the feedback or conclusions drawn from it were solely derived from the outputs of the computational models.

Computational techniques, by contrast, can process text far more quickly than a person would be able to. They are more systematic and thorough in processing a large volume of text in a consistent manner than purely human review. Computational techniques can also extract meaning from text that may be missed by human readers due to error or subjectivity. Computational techniques help to ensure that data is analysed in a fair and objective manner and enable the processing of a large volume of data in an optimal way. The findings from computational review were validated by manual review.

The computational models were subject to thorough scrutiny and challenge internally. An independent external review was also commissioned, and the models deployed were found to be fit for purpose.

3: Users’ rights, privacy, and protections

If a decision is taken to introduce a digital pound, protections would be put in place to guarantee the public’s rights and privacy. The Government has committed to introducing primary legislation with a vote in both Houses of Parliament before launching a digital pound. Legislation would be preceded by a further public consultation, and would guarantee users’ privacy, data protection, and control of their money. The Bank and the Government, along with the FCA and the PSR, will continue to safeguard access to cash.

The extent of engagement during the consultation period is a testament to the public’s interest and concern about the possible implications of the introduction of a digital pound. All of the feedback provided is valuable and will support further work in the design phase, by helping the Bank and HM Treasury to identify the issues that matter to the public.

Most of the responses described general sentiment towards a retail CBDC, and perspectives on its perceived impact by the public, rather than detailed feedback on the proposed design for a digital pound set out in the Consultation Paper. This detailed feedback is summarised in the next chapter ‘Feedback on the design of the digital pound’.

Many respondents expressed concerns that a digital pound could encroach on their rights. The Bank and HM Treasury recognise the strength of feeling on these matters and the need to build public trust in a digital pound.

This chapter covers the actions and commitments to deliver that guarantee for users’ privacy and control in the following areas (Diagram 5):

• Decision-making and the role of Parliament
• Privacy and data protection
• Programmability and user control of their money
• Safeguarding access to cash

Diagram 5: Users’ rights and privacy

Decision-making and the role of Parliament

Parliament has a central role in scrutinising the Bank and HM Treasury’s work on a digital pound.

While the Consultation Paper did not seek views on the role of Parliament, many respondents agreed that Parliament should have the opportunity to consider and scrutinise the decision to introduce a digital pound. This is consistent with feedback received from Parliamentarians.

Working with Parliament has been a priority for the Bank and the Government throughout the first phase of work on a digital pound, which has been subject to numerous discussions in the chambers and committees, including during the passage of the FSMA 2023.

The Consultation Paper noted that issuing a digital pound would require deep public trust in this new form of money. To build that trust, the Bank and HM Treasury have initiated a national conversation on the future of money – a dialogue involving a wide range of stakeholders, experts, and the public. The introduction of a digital pound, should a decision be taken to proceed, would be a significant undertaking, so it is crucial that Parliament plays a major role in any decision to launch a digital pound.

Last year, the Government committed to introducing primary legislation before the launch of a digital pound.

In May 2023, the Chancellor committed to introducing primary legislation in both Houses of Parliament before launching a digital pound. Parliamentary scrutiny is an essential part of assessing the case for a digital pound. If a decision were taken to proceed, Parliament would have the opportunity to vote on the design and regulatory framework of a digital pound, during the passage of primary legislation.

Important questions regarding the design of a digital pound still need to be answered before legislation could be introduced. However, the consultation feedback demonstrated that strong safeguards will be required to command users’ trust around key issues such as privacy and programmability. That is why the Government is now committing to enshrining objectives for privacy and programmability into legislation it would introduce for a digital pound.

The Bank and HM Treasury will continue to engage with Parliament as work progresses during the design phase. The introduction of primary legislation would be preceded by a further public consultation.

There will be continued open and transparent engagement with Parliament during the design phase as work progresses towards a decision on whether to introduce a digital pound. There would be further consultation with the public on a digital pound before introducing primary legislation.

Privacy and data protection

There is a difference between anonymity and privacy. The Consultation Paper described the commitment to making a digital pound private. Given laws to fight financial crime, it would not be anonymous.

Cash and anonymity

The physical nature of cash means that there is no digital record when it is used for payment, so it can be an anonymous means of payment. Many people value the anonymity of cash and prefer cash transactions for this reason, among others.

The anonymity of cash transactions means that, in some instances, criminals can seek to hide behind it for money laundering and other forms of financial crime.

The UK Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Regimes take a risk-based approach to managing these potential harms, so that the appropriate balance is struck between tackling any criminal activity and preserving freedom to use cash.^{footnote [6]} For example, businesses making or receiving large value cash payments in exchange for goods are subject to additional regulatory requirements, such as the undertaking of due diligence to understand the nature of the transaction and identity of those involved.

Digital payments and privacy

Unlike cash, digital payments, for example all debit and credit card purchases, generate personal data when used for transactions. Digital payments leave a digital footprint and so cannot be anonymous like cash.

The AML and CFT regimes also apply to digital payments. And because the ability to identify users is necessary to prevent financial crime, there are requirements for certain information to be sent alongside payments, with the amount of information required reflecting the value and perceived risk of the transaction.

Although digital payments are not anonymous, the privacy of the user’s identity and the data generated by transactions are stringently protected through data protection laws passed by Parliament.

It means that digital payments have built-in privacy safeguards, whereby law enforcement only have access to users’ personal information in limited circumstances where there is a fair and lawful basis.

The approach for the digital pound

The Consultation Paper committed to making a digital pound at least as private as the regime that applies to digital payments today. In addition, neither the Bank nor the Government would have access to users’ personal data. A digital pound would not be anonymous given the need to support enforcement against financial crime. But personal data for that purpose would be held by the Payment Interface Providers (PIPs) and would not be visible to the Bank and the Government.

The Consultation Paper set out that a digital pound would be subject to rigorous standards of privacy and data protection, and that it would be at least as private as current forms of digital money, like money in a commercial bank account or e-money.

The digital pound would not be anonymous because, just like bank accounts, the ability to identify and verify users is necessary to prevent financial crime. This puts the digital pound on a level playing field with digital payments today. A digital pound would not replace cash, so the public would continue to have access to an anonymous payment option.

The Consultation Paper explained that anyone who chose to use the digital pound would not engage directly with the Bank, but instead manage their digital pounds in wallets provided by PIPs.

PIPs would be required to identify users to protect consumers against fraud and financial crime, as is the case with commercial banks today. Just like opening a bank or other payment account, some level of identity verification would be required when opening a digital pound wallet. These requirements would be consistent with those that legally apply today and in the future for financial and payments institutions. The UK Digital Identity and Attributes Trust Framework, including the confidence levels outlined in Good Practice Guide 45, could be used by PIPs and users to support access to a digital pound.^{footnote [7]}

The Consultation Paper also proposed that PIPs explore ways to allow users to choose from a range of digital pound wallet services, based on tiered access with varying levels of identification, to ensure the digital pound is accessible to all. The next chapter on ‘Feedback on the design of the digital pound’ sets out respondents’ views on tiered access to digital pound wallets.

All firms that process personal data within a digital pound system would be subject to robust regulation and have to comply with UK data protection laws, such as UK General Data Protection Regulation (GDPR).

The Bank and the Government would not have access to users’ personal data. The Bank would be responsible for ensuring that payments between accounts are processed and settled. To perform this function, the Bank would only require anonymised settlement data. To run the core ledger, the Bank would not need to access users’ personal data, such as users’ names or what their digital pounds were spent on (Diagram 6). Law enforcement agencies would only have access to users’ personal information in limited circumstances and where there is a fair and lawful basis – as is the case today.