Digital pound apps would let banks track customer locations

THE Bank of England is to forge ahead with developing a digital pound, despite conceding that apps used to access the new currency could track user location and spending habits.

Officials are to run a series of experiments to work out how best to protect privacy in the new system, which aims to create an equivalent of a banknote and has been called “Britcoin”.

If the central bank digital currency (CBDC) is created “privacy would be a core design feature of a digital pound”, the Bank said.

It added: “The Bank is committed to exploring technological options that would prevent the Bank from accessing any personal data through the core infrastructure.”

However the system would not be completely anonymous, and rules governing money laundering and criminal activity would apply, as they do to existing bank accounts. The Bank has conceded that “wallet” apps used to hold the digital currency could include features such as location tracking that risk raising privacy fears.

Work on the scheme has so far cost up to £10m. It is expected to take several more years to explore the concept and design a CBDC, with legislation required. It could be in operation early in the 2030s.

Neither the Bank nor the Government would be able to program the digital money to dictate how it can and cannot be spent – though this could be an option for the private sector, either in the design of digital wallets or in contracts that use the digital pound. The Bank has not said what concrete benefits a digital pound will bring, but it is planning to create the system and then allow the private sector to work out how best to use it.

Later in the process, the Bank intends to create “a framework to evaluate the costs and benefits of a digital pound, to inform the decision on whether to proceed to the build phase”.

It is understood that experiments have so far indicated it could have uses in trade finance and automating repayments for passengers of delayed trains.

MPS on the Treasury select committee, led by Harriett Baldwin, have urged caution in developing a CBDC and sought more transparency on the costs.

Mrs Baldwin said: “Launching a retail digital pound will be a major technology project and it is vital that this is only undertaken if the benefits are shown to clearly outweigh the risks.

“One of the key risks is around the potential misuse of data, which is why we recommended privacy protections be enshrined in primary legislation.”

‘One of the key risks is the misuse of data, which is why we recommended privacy protections’