BoE Digital Pound project reversal: innovative payment solutions at commercial banks

The debate surrounding central bank digital currencies (CBDCs) has reached a new but unexpected stage. The Bank of England (BoE) is reportedly reevaluating its digital pound plan, with internal discussions suggesting a potential shift away from prioritizing a digital pound, opening a new phase of CBDC reconsideration.

While the global trend still pushes toward central bank digital currencies, and the European Central Bank (ECB) is preparing a digital euro for the next phase, the Bank of England (BoE), is now opting for innovation from the private sector, scrapping its active plans for a digital pound altogether.

This may trigger other countries to rethink their own CBDC plan, pointing to growing political, social and economic tensions surrounding the introduction of digital central bank money systems.

BOE reconsidering its CBDC plan/ BOE setting aside CBDC plans

Bank of England officials are currently reconsidering the usefulness and necessity of a digital pound, setting aside/suspending plans to create such a consumer digital pound, casting doubt on the necessity of it. This amid growing scepticism/uncertainty about the project's benefits, and reflecting a global trend of less support for state-issued digital currencies.

BOE raising doubts

Diminishing benefits

A research paper by BOE staff published late last year found that interest in CBDC issuance has declined markedly in recent years. In this research paper senior officials have indicated that perceived benefits of moving forward with a digital pound launch have diminished considerably in recent years, as consumers increasingly turn to existing online payment technologies, prompting a strategic reassessment of the project’s necessity. They raised doubts over blockchain’s efficiency, claiming high costs and fraud risks.

Slow in progress

In addition, the British CBDC project is relatively slow in progress, compared to other countries. Technical and operational hurdles remain unresolved. Implementing a digital pound would require robust infrastructure to avoid destabilizing existing systems, a challenge compounded by shifting public sentiment.

The Atlantic Council’s CBDC tracker indicates that the UK is still in the research and development (design) phase while 49 countries worldwide are already conducting pilots, firmly lagging behind other nations in its CBDC rollout. The central bank and government have yet to make a final decision on whether to launch a CBDC. A joint decision will be made once this process is complete.

Public opposition: CBDC Privacy Concerns Take Centre Stage

The Bank of England (BoE) is facing increasing scepticism about whether a consumer-facing digital currency will actually provide tangible benefits to the financial system or the institution itself. It came amid over public consultation responses and resistance from lawmakers, privacy advocates, and conspiracy theory groups concerned about government surveillance of financial transactions. The possibility of issuing a digital pound faces opposition from many parties

Over 50,000, largely critical, responses came in to a request for public feedback, during the Bank of England consultation, highlighting concerns about privacy, surveillance risks, and destabilising impacts of bank runs if investors flooded state-backed digital currencies during crises  Critics also warned of enabling tech monopolies or undermining traditional financial systems.

Many were raising potential privacy risk issues, an issue amplified in an AI-driven financial ecosystem. Critics say the integration of programmable money and AI tools could create surveillance-like financial ecosystems.  AI systems, when paired with CBDCs, can potentially track and profile spending patterns in real time. The UK’s hesitation reflects deepening concerns over how such systems might interact with emerging artificial intelligence tools.

Other concerns include potential bank runs during crisis, destabilizing impacts if investors flooded into state-backed digital currencies as a haven during times of crisis, which could drain liquidity from the general financial system. But also threats from foreign or tech-backed stablecoins further complicated the digital pound’s prospects

BOE Governor Andrew Bailey: no need for a digital pound

BOE Governor Andrew Bailey recently expressed scepticism about the idea of issuing a digital currency, questioning the need for a digital pound if existing banking technologies can address emerging challenges.

He has publicly expressed doubts about the necessity of issuing a retail CBDC, stating in June at a Parliamentary hearing that he remains unconvinced “we need to create new forms of money”, expressing support only for CBDCs for transactions between financial institutions, not for the general public.

Bailey recently suggested that improvements in commercial payment systems may eliminate the need for a CBDC. He  said “if the work with the commercial banks is successful, I would need a lot of convincing” on the need for so-called Britcoin. Bailey continued saying if commercial innovations in payments prove successful, there may be no compelling reason to issue a digital pound., stating "if commercial bank innovations succeed, I question why we need to introduce a new form of money."

Despite reconsidering its CBDC initiative, the BOE has not fully embraced stablecoins either. Bailey has raised concerns over the emergence of stablecoins, warning against the risks of stablecoin domination. He noted that stablecoins could pose systemic risks to financial stability and potentially undermine the very nature of money if left unregulated.

Bailey’s new stance favours innovation over regulation, highlighting the bank’s retreat from direct involvement in programmable currencies

Remarkable stance change: Retreat from earlier vision

It is seen as a remarkable shift from the BoE's earlier pro-CBDC stance in 2023, when  Bank of England and UK Treasury officials supported a Digital Pound. In that year Governor Bailey stated that there was a high probability a digital pound would "likely" be needed in the future, mostly due to strong institutional support at the time. Also a Dock.io report pointed to blockchain’s effectiveness in reducing supply chain fraud by enabling secure, trackable transactions.

Governor Bailey's tone has since changed. He regularly expressed doubts about the necessity and scalability of central digital currencies, especially now that stablecoins and other solutions are gaining ground. But now, Bailey says the private sector should lead digital currency development. The BoE’s Financial Services Growth and Competitiveness Strategy emphasizes innovation rather than currency issuance, reflecting a broader pivot toward supporting private-sector advancements.

Encouraging commercial banks to take the lead

While no formal decision has been made, the BoE’s focus has shifted toward monitoring private-sector innovations. The move aligns with growing confidence in private-sector payment solutions and a global trend of waning enthusiasm for CBDCs.

BoE officials are said to be encouraging commercial banks to focus on improving existing payment systems rather than relying on the creation of a new digital form of money. They are willing to step back if private businesses continue to roll out new electronic—payment technologies, and its staff believe the gains from pressing ahead with a digital pound launch have diminished.

The BoE’s “wait-and-see” approach underscores a broader recognition that private-sector solutions may offer faster, more cost-effective alternatives to a state-backed digital currency While the BOE wants to maintain its ability to issue CBDCs if needed in the future, it is prepared to delay or back out of the project if the private sector continues to develop electronic payment systems thereby innovating payment transactions

The BOE is urging commercial banks to redirect their efforts away from CBDCs and instead accelerate the development of innovative payment solutions that could result in similar benefits to a CBDC, rather than rolling out a consumer-oriented CBDC itself.

BOE officials argue that commercial banks and fintech firms are already addressing key issues such as cross-border payments and financial inclusion, thereby providing digital payment services, interest-bearing accounts, and financial security for deposits under £85,000 through established frameworks. This is firmly reducing the urgency for a central bank to intervene.

Stablecoins versus tokenized deposits

Bailey emphasized the significant systemic risks associated with banks issuing private stablecoins. The governor warned stablecoin proliferation could undermine sovereign monetary control and fragment financial systems without proper oversight.

According to Governor Bailey banks should prioritise developing regulated tokenized deposits as a viable alternative, which some experts see as a more stable way to bridge traditional finance and digital assets.

Bailey’s preference for tokenized bank deposits that align with existing bank practices over state-backed money for consumers aligns with his concerns about stablecoins taking “money out of the banking system” and the “credit creation world.”

Global scepticism: Other jurisdictions halted their CBDC projects

The CBDC debate is not only under pressure in the UK. The shift in sentiment  and the dwindling interest globally in the creation of state-led digital currencies mirrors global scepticism, highlighting the fragility of CBDC ambitions worldwide. As stablecoins and other payment innovations emerge, central banks increasingly balance innovation with practicality. As a result the BoE’s approach may serve as a cautionary example for other nations.

US: main example

Resistance to CBDCs is growing not only in the UK, but also in the US. The United States, under the Trump administration, paused its CBDC development. It has blocked further work on a CBDC in the US, triggered by financial stability concerns

The House of Representatives recently passed the Anti-CBDC Surveillance State Act. This law prohibits the Federal Reserve from developing a digital dollar without explicit congressional approval.

The GENIUS Act was recently passed there, expressing a clear preference for stablecoins over centralised digital currencies. An amendment to ban CBDCs entirely did not pass, but the message is clear.

Other jurisdictions

The shift in sentiment in the UK reflects a broader trend towards lesser support for CBDCs. There are other jurisdictions that have recently halted their CBDC projects. South Korea’s central bank suspended its digital currency pilot program earlier this year. Progress is also stalling in other countries. In Canada and Australia, public confidence in CBDCs is low. But if a pioneer such as the UK shelves its CBDC plan, there is a good chance that others will follow suit.

Other countries are still advancing their CBDC projects

The broader international momentum behind CBDCs seems to be mixed. While the UK rethinks its plan, and other countries follow their example, global interest in CBDCs is still strong.

The Atlantic Council reports 114 countries that are actively exploring or launching CBDCs. Meanwhile, 49 countries are in the pilot phase, 20 are actively developing their projects, and 36 are still in the research stage. The only countries that have introduced a national digital currency so far are the Bahamas, Jamaica and Nigeria — with usage remaining minimal, especially in Nigeria

ECB pressing ahead

In contrast, the European Central Bank is still pressing ahead moving forward with its digital euro project. In early July, the ECB announced that the digital euro project is entering the ‘preparation phase.’ The United States' strategy is also playing a role: Europe wants to use the CBDC to counter Trump's crypto plans.

This means that the bank is now testing specific technologies, collaborating with commercial partners and considering legislative frameworks. The final decision on implementation will follow in 2026. ECB President Christine Lagarde emphasised that a digital euro should complement cash, not replace it.

While the European Central Bank is still working on its digital euro, support for it is wavering. There is a fear that citizens and businesses will withdraw money from banks in a massive way if they can also hold funds at the ECB itself via a digital currency. Those risks now seem to outweigh the benefits.

Impact on the crypto market

The cancellation of the British CBDC comes at a time when crypto is gaining momentum again. Instead of competition from governments, the space for stablecoins and open blockchain technology seems to be increasing.

Stablecoins such as USDT and USDC are currently the backbone of much of the trading volume in the market. Less competition from governments means that these coins may become even more dominant.

The UK's decision increases the likelihood that major players will continue to invest in existing blockchain solutions rather than waiting for new government products. This could be the start of a new chapter for crypto.

Forward looking

The coming months will be crucial for the future of CBDCs. While the ECB is committed to a digital euro in response to private stablecoins, the UK seems to be opting for a market-driven approach.

Both paths highlight the dilemmas facing policymakers: innovation and competition versus privacy, stability and trust.

The Bank of England does not want a CBDC for the time being and prefers market-driven innovation. In doing so, the UK is setting the tone for a broader shift.

The Bank of England’s proactive stance may set a precedent for other central banks, potentially leading to a global reassessment of how currencies are issued and managed in the digital age.

The conversation around CBDCs is likely to evolve, influenced by technological advancements, regulatory developments, and shifts in consumer behaviour.

However, the timeline for a final decision on the digital pound is still a few years away, with 2025 or 2026 being the target for a conclusion.

Despite holding off on the idea of a digital pound, Bailey expressed concerns that stablecoins issued by other countries or large tech companies could become popular in the UK and undermine trust in the traditional financial system. If that happens, the BOE may need to move forward with the development of its own digital currency. But that would be a wholesale CBDC.

Time will tell!