The latest report revealed that the Bank of England does not intend to access users’ data registered with the proposed digital pound. Rather, banks and tech firms would run the Know Your Customer (KYC) and front-end services while it runs the ledger in which the token would be built.
When the Bank of England (BofE) announced its plans to create its central bank digital currency (CBDC), dubbed the digital pound, many financial experts analyzed that the CBDC would empower the government to access and control users’ data.
However, the BofE has voiced out to debunk the motion. It claimed the proposed CBDC would be very similar in use cases with a typical crypto asset except that it is not anonymous.
Furthermore, the chief of strategy and architecture in BofE, William Lovell, stated that the Digital Pound would offer users all the benefits of digital money but with minimized risks.
Lovell added that with the advancement of financial technologies, the payment system is gradually changing from physical to digital, exposing customers to another set of risks entirely. And as a quest for the central bank to create monetary and financial stability, it has to make a new way to manage the emerging payment systems to mitigate financial risks.
The chief stated this during a recent webinar dubbed “Demystifying the Digital Pound.” Furthermore, Lovell emphasized that the UK government is not planning to build a surveillance state via its Digital Pound, as most people feared.
UK Government Has No Access To Users Data
According to Lovell, the UK aims to create a digital currency that people can use to pay for everyday transactions, a retail payment CBDC. The digital pound would have the same value as the fiat pound note, such that a CBDC of 20 pounds is the same as a 20-pound note, according to the report.
In addition, Lovell revealed that the Bank of England and the Bank of Canada are collaborating to ensure CBDC offline payment is possible. Also, the general adoption of the Digital Pound would expectedly unfold slowly, just like the contactless card payment and the instant banking transfer were gradually introduced before people got used to them.
Lovell emphasized that neither the BofE nor the UK authorities could access customers’ transaction data linked with the proposed Digital Pound. The bank would only have access to the underlying ledger on which the currency would be built.
However, she added that other banks and private financial technology firms would run the KYC and Anti-Money Laundering pilots and the front-end services associated with the CBDC. But, the Digital Pound would not be anonymous. Nonetheless, users can adjust their privacy level by adding more info to access more functions on the currency.
The core of the proposed CBDC is the ledger controlled by the Bank of England. Because the transaction and account balances would be recorded on the ledger. This role is similar to central banks’ role of printing fiat banknotes, according to Lovell.
The CBDC Opens Up A New Financial System
Furthermore, the CBDC can be accessed via the PISPs Payment Infrastructure Service Providers. This new entity provides various types of digital wallets to users through which they can use their Digital Pound and perform other functions. It could range from mobile apps to smart cards, as per the report.
In addition, reports stated that banks and other financial technology firms could become PISPs. These models are not exposed to credit or deposit-taking risks that traditional banks suffer from. Hence, this model reportedly creates an easy entry for anyone who wants to participate in the ecosystem.
Additionally, users do not need bank accounts as the PISPs offer many services like loans and credit without the involvement of the Bank of England, according to Lovell. To avoid large-scale deposit and withdrawal issues that supposedly caused the collapse of Silicon Valley Bank, Lovell suggested the enforcement of holding limits for the Digital Pound.
Individuals could hold an amount of CBDC proportional to their income level. According to Lovell, the BofE is consulting the public on the applicable holding limit of £20,000, £10,000, or £5,000.
The consultation reportedly started in February and would end by June 31st. Currently, it has received hundreds of thousands of submissions, according to the report. Furthermore, the Bank of England to work on the Digital Pound for the next few years before considering issuing it to the public or not.