TLDR
- Bank of England launches Digital Pound Lab in 2025 to test CBDC capabilities through hands-on experimentation
- No final decision made on digital pound implementation; earliest possible launch in second half of decade
- Project focuses on public-private partnership model with emphasis on innovation and financial inclusion
- Design phase includes creation of blueprint, experiments, assessment framework, and public engagement
- Parliament approval and primary legislation required before any potential launch
The Bank of England (BoE) has announced the creation of a ‘Digital Pound Lab’ as part of its ongoing development of a potential central bank digital currency (CBDC). The laboratory, set to launch later in 2025, will serve as a technology sandbox environment for testing and experimenting with digital currency applications.
In its January 14 progress update, the BoE outlined advances made during the design phase of the digital pound project, which began in early 2023. The central bank emphasized that no final decision has been made on whether to proceed with a digital pound, with the earliest possible launch date in the second half of this decade.
The Digital Pound Lab will enable private sector partners to test application programming interface (API) functionality, explore innovative use cases, and evaluate potential business models. The laboratory environment aims to provide a simulated setting where companies can experiment with digital currency capabilities and assess various implementation scenarios.
The design phase consists of four main workstreams running in parallel. These include experiments and proofs-of-concept with private sector collaboration, the creation of a detailed blueprint for the proposed model, a program of external engagement called the “national conversation,” and an assessment framework to evaluate costs and benefits.
Bank officials have started analyzing end-user payment needs and use cases, working to understand how these could be enabled using the digital pound. Through surveys and working groups, the BoE has engaged with individuals and businesses to better comprehend existing payment challenges and requirements.
The blueprint framework, published alongside the progress update, outlines four key components: product vision and strategy, scheme and regulation, technology considerations, and operational requirements. This framework will guide the development of a comprehensive proposal for the digital pound.
Partnership with the private sector remains central to the project’s approach. The BoE envisions a model where public authorities focus on delivering resilient, open infrastructure while private innovators address user and merchant needs through novel products and services.
Privacy protection has emerged as a key focus area. The BoE has published a detailed report titled ‘Enhancing the Privacy of a Digital Pound,’ aimed at informing public dialogue and encouraging further research on privacy technology options for CBDCs.
Any implementation of a digital pound would require parliamentary approval and primary legislation. This legislation would include safeguards for user privacy, ensuring that neither the Bank nor the Government could access users’ personal information or control how people use their money.
The BoE has conducted several technical experiments across various aspects of the potential digital currency. These include testing e-commerce applications, exploring offline payment capabilities, and assessing point-of-sale hardware compatibility.
Through Project Rosalind, a collaboration with the Bank for International Settlements Innovation Hub London Centre, the BoE has developed and tested APIs for core CBDC functionality. This experiment engaged over 20 public and private sector innovators.
The central bank is evaluating different ledger technologies and architectures, including relational databases, NoSQL, and distributed ledger technologies. These assessments focus on meeting technical requirements for performance, resilience, environmental impact, and privacy.
Current engagement efforts focus on technical stakeholders through forums such as the CBDC Engagement Forum and Academic Advisory Group. These groups provide expertise on various aspects including offline payments, retailer needs, privacy considerations, and broader economic implications.
The project aligns with the UK’s National Payments Vision, which aims to create a trusted, world-leading payments ecosystem built on next-generation technology. This vision emphasizes consumer choice and business needs in payment methods.
Financial inclusion represents another key objective, with the digital pound potentially offering new ways for people to access digital payments, particularly those currently excluded from the digital financial system.
The BoE has committed to regular progress updates and will continue publishing design notes on specific aspects of the digital pound. These publications aim to maintain transparency and encourage stakeholder input throughout the development process.
The project timeline suggests that after completing the design phase over the next couple of years, the BoE and UK government will assess the policy case for a digital pound and determine whether to proceed to a build phase.
