A new Bank of England-issued digital currency, dubbed 'Britcoin' in the media, wouldn't launch until at least 'the second half of the decade', according to the man leading the project.
Tom Mutton, director of fintech at the Bank of England, told the Which? Money Podcast that the Bank is approaching the possibility of a central bank digital currency (CBDC) with an open mind, and that it may decide not to introduce one at all.
Read on to find out more about the Bank's current thinking on the CBDC project, and how it could work if it goes ahead.
Put simply, a CBDC is a digital currency backed by a country's central bank - so that's the Bank of England in the UK or the Federal Reserve in the USA, for example.
Central banks all over the world are looking into digital currencies, with some launching or piloting them already. But in most countries at the moment, they're hypothetical.
So what would they actually mean for people day to day? 'I like to think of CBDC as being a little bit like a digital bank note,' Mutton told us. 'So Bank of England-provided money for everyday payments by households and businesses.'
'And because this would be money provided by the Bank of England, it would be a very secure and trusted form of money. And £10 of CBDC will always have the same value as £10 of cash.'
Mutton says people could receive their salary in CBDC, use it to go shopping or pay bills. They could even use it to make high-value purchases like TVs or holidays. He thinks it's unlikely, however, that people would use CBDC for longer term savings.
'Britcoin' shouldn't be mistaken for Bitcoin, as a CBDC wouldn't necessarily work in the same way. At the moment, cryptocurrencies like Bitcoin are primarily used as investments, and their value can fluctuate. A CBDC on the other hand would be made for everyday spending.
'We think that CBDC would most likely be accessed and used via a smartphone app,' said Mutton. 'But it's really important that people who don't have a smartphone can also still use it.' To address this, alternatives to an app, such as prepaid cards, are also being explored.
Mutton says the apps and cards themselves would be provided by private sector companies. 'The Bank of England would focus on its specialism of providing very safe and trusted money, so we would operate the core technology and infrastructure, and [the private sector] would do the onboarding and sign people up to the service.'
This would allow each party to play to its strengths, says Mutton, with the Bank providing the money and private firms providing 'really innovative services' and 'hopefully good customer service'.
Since the Bank hasn't taken a decision on whether or not to go ahead with a digital currency, it naturally doesn't have a specific release date in mind.
Still, we asked Tom Mutton when it could be implemented at earliest if the Bank does create one. 'The answer is if we were to do this - and it is an if - it would be a multi-year project. In my view I think the second half of the decade would be the very earliest feasible date. It's therefore pretty unlikely that you'll have a digital pound in your pocket, so to speak, anytime soon.'
'We actually need to produce a rigorous assessment of whether this is going to add value, because we don't want to start a major project if actually there wasn't a good use case for it.'
Some have dubbed a CBDC as a potential 'government surveillance coin', as it could allow the Bank of England to see personal data around spending.
For Mutton, a CBDC's strength in this area is that the Bank of England 'wouldn't have a commercial incentive to use people's information' and therefore could provide 'a higher standard of privacy' than private firms.
We put it to Mutton that governments have been known to invade citizens' privacy on a mass scale for other means, separate from commercial incentives. Is there a risk of this happening with a CBDC?
'It's a good question, and it's one we have to think about very carefully,' he said. 'Privacy is fundamental to trust and confidence in money, and money only works if people trust it. So maintaining high standards of privacy is going to be a non-negotiable for us in a CBDC system.'
The CBDC Taskforce is looking into ways it can protect privacy with a CBDC. 'There's a range of techniques we can use, from privacy-enhancing technologies through to setting up the CBDC system in such a way that personal data is segregated and safeguarded.'
Mutton also points out that a CBDC would be just one way to pay of many, so people would be able to choose not to use it.
On the other hand, Mutton said: 'the use of data can have relevance to certain public policy objectives. The most obvious one is avoiding financial crime, avoiding money laundering. And we will have to consider the circumstances in which data might be used with the proper protections by the right authorities where it is necessary for the purposes of law enforcement.'
Mutton was keen to stress that a CBDC would not be a cash replacement; it would exist alongside cash. 'They'd be compliments to each other,' he said.
'So just as we have our Visa or Mastercard in physical form in our pockets, and often in digital form on our phones, we might also be able to have both physical cash in our pocket and digital cash as well.'
'You'll definitely still be able to use cash or your debit card if you prefer those.'
Mutton thinks it's important to frame the 'cash vs CBDC' debate in the right context. As he's said, it wouldn't be launching for several years. By that time, the payments landscape could look quite different.
'There are some potentially significant digital money projects being considered by the private sector. None of these have launched at scale yet, but some examples include the Diem digital currency which is from a consortium of companies including Facebook.
'So if such digital currencies were to emerge, CBDC could have a role in making sure that people have a choice about whether they want to use a private digital currency, a publicly issued digital currency by the Bank of England, or indeed whether they want to use a mixture of the two.'