Bank of England and HM Treasury publish digital pound consultation paper

The Bank of England and HM Treasury published a consultation paper on a digital pound on 7 February 2023, titled "The digital pound: a new form of money for households and businesses?"¹. The paper sets out proposals for a UK central bank digital currency (CBDC)¹.

The Treasury Committee's report on cryptoassets, published on 17 May 2023, notes that the Government and Bank of England "have published a separate consultation paper on a UK CBDC" and that the Committee is considering central bank digital currencies separately from its cryptoasset inquiry¹. The Committee's report does not cover the digital pound consultation in detail¹.

The consultation sits alongside wider government work on cryptoassets. In February 2023 the Government also published a consultation paper setting out its overarching plan for the regulatory framework to be applied to cryptoassets used within financial services¹. That consultation proposed bringing cryptoassets within the framework established by the Financial Services and Markets Act 2000 by expanding the list of specified investments in Part III of the Regulated Activities Order¹. The Government stated it was pursuing four policy objectives: encouraging growth, innovation and competition; enabling consumers to make well-informed decisions; protecting UK financial stability; and protecting UK market integrity¹.

The Treasury Committee's report gives context on the cryptoasset market. It states that unbacked cryptoassets "are not supported by any underlying asset and so have no intrinsic value"¹. It puts the total market capitalisation of cryptoassets at $1.2 trillion, or 0.2 per cent of the $487 trillion of total global financial assets, down from a peak of $2.9 trillion in November 2021¹. It cites Bank for International Settlements research estimating that 73 to 81 per cent of users who entered the Bitcoin market over 2015 to 2022 were likely to have lost money on their investments¹.

On the risks from cryptoassets, the report cites the Government's second Economic Crime Plan (2023 to 2026), which noted a National Crime Agency estimate that "illicit cryptoasset transactions linked to the UK in 2021 likely equated to at least £1.24 billion (~1% of total transaction value) with a realistic possibility they were significantly higher"¹. It also cites the Financial Ombudsman Service saying that "just over half of the investment scams we have seen involve cryptocurrencies"¹.

Why it matters for households

The digital pound consultation concerns a possible new form of money issued by the Bank of England for households and businesses to use¹. The Treasury Committee's report does not set out the detailed contents of that consultation, so what a digital pound would mean in practice for household finances has not been reported in the material cited here¹.

The cryptoasset consultation published in February 2023 is separate from the digital pound work and covers the regulation of cryptoassets used within financial services¹. The Government's stated objectives for that framework include enabling consumers to make well-informed decisions with a clear understanding of the risks involved¹. The report notes that the Government intends the regulations to capture cryptoasset activities provided in or to the UK¹.

The report records consumer losses from cryptoasset failures, including the collapse of the Bahamas-based exchange FTX, which "resulted in consumers losing significant amounts of money"¹. It also notes that the price volatility of unbacked cryptoassets exposes consumers to significant risks of losses¹.

What happens next

The Treasury Committee report states that the Government has two months to respond to its recommendations¹. The report was published on 17 May 2023¹. The Government's consultation on the future financial services regulatory regime for cryptoassets was published on 1 February 2023¹. The digital pound consultation paper was published on 7 February 2023¹. No further timetable for the digital pound has been reported in the material cited here¹.