In a consultation published today (February 7), the bodies said they wanted to ensure the public has access to safe money that continues to be convenient.
The central bank digital currency (CBDC) would be interchangeable with cash and bank deposits, accessible through digital wallets provided by the private sector, and its value would be pegged to the pound.
The currency would be available on smart phones and smartcards, and would be intended for payments in-store and online, but not for savings.
There would be initial restrictions on how much an individual or business could hold, and the central bank said it is mindful that the design of the CBDC needs to be simple and straightforward to use and trusted by the public to ensure it meets the needs of vulnerable people.
A digital pound could be a new way to pay that is trusted, accessible and easy to useJeremy Hunt, chancellor
The BoE has asked for feedback from the public in order to decide whether or not to introduce the currency, which it has emphasised is unlike crypto assets and stablecoins as its value is pegged to the pound.
Chancellor of the exchequer, Jeremy Hunt said: "While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new way to pay that is trusted, accessible and easy to use.”
Governor of the BoE, Andrew Bailey, said as the way individuals pay for things becomes more digitalised, the case for a digital pound “continues to grow”.
“A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability.
“However, there are a number of implications which our technical work will need to carefully consider.”
Under the BoE’s plans, the digital currency will sit on a core ledger, provided by the central bank, which would provide the minimum necessary functionality.
This infrastructure would then be used by private firms to design services and handle customer-facing interactions.
Users of the digital pound would not be anonymous, however neither the government nor the BoE would have access to personal data, and holders would have a similar level of privacy as a bank account.
Users would make payments through digital pounds in a similar way to current contactless payments.
The BoE added that the CBDC may also bring benefits such as reducing the cost and time delay of cross-border payments, and supporting financial inclusion.
Although the pandemic sped up the long-term decline of cash usage, the cost of living crisis has prompted more to start using cash again as a budgeting tool.
Concurrently, the closure of many high street bank branches has made it harder for consumers to access physical cash.
A quarter of people in the UK use cash more than once a week, and 5mn (around 10 per cent) use it daily, according to the Financial Times.