TLDR
- Bank of England launches Digital Pound Lab in 2025 to test CBDC capacity through hands-on experiments
- No final decision made on digital pound implementation; earliest possible launch in the second half of the decade
- The project focuses on public-private partnership model with an emphasis on innovation and financial inclusion
- The design phase includes the creation of blueprints, experiments, frameworks for evaluation and public engagement
- Parliamentary approval and primary legislation are required before any launch
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 lab, which will launch later in 2025, will serve as a technology sandbox environment to test and experiment with digital currency applications.
In its January 14 progress update, the BoE outlined progress made during the design phase of the digital pound project, which began in early 2023. The central bank stressed 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 lab environment aims to provide a simulated environment where companies can experiment with digital currency features and assess different implementation scenarios.
The design phase consists of four main workflows that run in parallel. These include experiments and proof-of-concept with private sector collaboration, the creation of a detailed plan for the proposed model, a program of external engagement called the “national conversation” and an evaluation framework to evaluate costs and benefits.
Bank officials have begun analyzing end-user payment needs and use cases and working to understand how these can be enabled with the digital pound. Through surveys and working groups, the BoE has engaged with individuals and businesses to better understand existing payment challenges and requirements.
The blueprint framework, published alongside the progress update, outlines four key components: product vision and strategy, schedule 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 robust, open infrastructure while private innovators meet user and merchant needs through new products and services.
Privacy protection has become an important focus area. The BoE has published a detailed report entitled “Enhancing the Privacy of a Digital Pound”, which aims to inform public dialogue and encourage further research into privacy technology options for CBDCs.
Any implementation of a digital pound would require parliamentary approval and primary legislation. This legislation would include user privacy protections, ensuring that neither the bank nor the government can access users’ personal information or control how people spend 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 options 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 the CBDC’s core functions. This experiment engaged over 20 innovators in the public and private sectors.
The central bank is evaluating various 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 integrity.
Current engagement efforts focus on technical stakeholders through forums such as the CBDC Engagement Forum and the Academic Advisory Group. These groups provide expertise on various aspects including offline payments, retailer needs, privacy issues and wider financial implications.
The project is in line 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 is another important goal, with the digital pound potentially offering new ways for people to access digital payments, especially those currently excluded from the digital financial system.
The BoE is committed to regularly updating progress and will continue to publish 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 in the coming years, the BoE and the UK government will assess the policy case for a digital pound and decide whether to move on to a construction phase.
