Bank of England announces ‘Digital Pound Lab’ to test potential capabilities
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The Bank of England (BofE) continues to explore potential use cases for a ‘digital pound’ but has stressed that the prospect of a UK CBDC is still not set in stone.

In an update on the progress of its research into and development of a digital pound, the UK central bank revealed plans to launch a ‘Digital Pound Lab’ later this year in cooperation with HM Treasury.

The lab will function as a technology sandbox to allow experimentation of API functionality, innovative use cases for a digital pound, and potential use models for payment interface providers (PIPs) and external service interface providers (ESIPs).

BofE explained: “The Digital Pound Lab will provide a simulated environment to test the potential capabilities of a digital pound, offering critical insights into the feasibility of different use cases. This would help assess the feasibility of developing a digital pound as a platform for innovation.”

The lab will be accompanied by the already established Engagement Forum and Academic Advisory Group, though the bank’s Technology Forum will be shut down with future technology engagement to be supported by the new lab.

In addition, the bank has provided an update on the blueprint for the creation of a digital pound. This concerns the project’s product vision and strategy, including how the digital pound meets policy requirements and its potential for consumers and merchants.

Other factors include regulation of the digital pound and setting standards for its use and operation, the technology behind the pound, and the operational roles, functions and service levels required to maintain its infrastructure.

The bank adds that it has made significant progress on formulation of the blueprint. It has published a set of principles to guide decision making and is in the process of developing a product vision and strategy for the project.

The aforementioned role of PIPs, which are considered digital pound intermediaries, has also been explored, alongside the way these firms’ engagement with a digital pound will be governed.

An important area is the way in which a digital pound will interact with other forms of money. As debit and credit cards remain the dominant forms of payment in the UK and cash remains a small but significant method for many, it is important that the bank considers how a digital pound will impact these.

“Through our work on the blueprint, we have advanced work on all its key components, including the vision and product roadmap, the scheme and technology framework, and the operational approach needed for a potential digital pound,” the bank continued.

“Our experiments across diverse topics have enhanced our practical understanding of design options, enabling us to address specific technical questions in detail. These activities have enriched our knowledge of how a digital pound could function and interact within the broader payments ecosystem.”

Whether or not the BofE is in favour of a digital pound is hard to say, but it is clear that the bank is preparing itself for a potential launch as CBDCs and other forms of digital currency become even more integrated into the wider financial ecosystem and economy.

Questions about anonymity also remain, and the government has mentioned on previous occasions that a digital pound would be private but not totally anonymous, due to the risks of potential criminal use.

It is important to reiterate though that the launch of a digital pound in the near future is not a certainty and both the BofE and HM Treasury have assured this. This is despite the extensive research, engagement and experimentation undertaken by the BofE in recent years.

The UK is not the only major economy to probe the launch of a CBDC. Australia and the European Union have been evaluating the creation of a digital Australian dollar and Euro, respectively.

A market that can probably be ruled out now is the US, however. President-elect Donald Trump, who will be inaugurated for his second term on Monday 20 January, is a vocal opponent of CBDCs and the prospect of a digital US dollar.