The Bank of England (BoE) has announced it will launch its Digital Pound Lab this year in an effort to experiment with emerging technologies and innovative use cases supporting the UK’s first Central Bank Digital Currency (CBDC).

In its latest progress update on the work, the Bank said the lab will provide a sandbox environment for testing API functionality and potential business models for payment interface providers (PIPs) and external service interface providers (ESIPs). 

The new Digital Pound Lab will form part of the BoE’s digital currency design phase, which the bank said will consist of four interconnected workstreams.

That work is set to include an experimentation and proof of concept phase, the creation of a blueprint modelling a potential digital pound that outlines the roles of both the Bank and the private sector in delivering it, a programme of national engagement together with the Treasury to begin gathering feedback, and analysis of the costs and benefits a digital pound would bring.

Through its assessment, the Bank said it will then be able to come to a firm decision about whether work should progress onto the build stage, however regardless of the outcome, the BoE said it expects the design phase alone to yield significant benefits for the UK fintech ecosystem.

According to the Bank, it will now focus on publishing design notes, the first of which has already been released,  in an effort to harness the  external expertise necessary for building a central digital currency, which will outline its initial thinking on aspects of a digital pound.

Part of these early considerations regards how users will access and interact with a digital pound, including how it might function when used alongside everyday devices like smartphones and wallet services, with emphasis on making the new currency secure and easy to use.  

“A digital pound could extend access to retail central bank money by supporting and complementing the system of cash and privately issued money – primarily commercial bank deposits and new forms of private digital money in the future,” said the report.

“Through its technical and scheme standards, a digital pound could help deliver a safe, reliable and accessible digital infrastructure for participants. 

“It could also provide a means for private digital payment providers to ensure interoperability with central bank money. Together these would benefit the overall payments ecosystem.”

Within its progress note report, the Bank highlighted the initial successes of Project Rosalind, a joint experiment between the Bank of England and the Bank of International Settlements, aiming to develop API prototypes  to enable a central bank ledger to interact with private sector service providers.

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According to the BoE, these early experiments ‘showcase UK fintech leadership’, generate business opportunities for UK firms, and will help to inform the future of a digital pound created in tandem with the fintech and payment technology communities, with driving innovation in the private sector considered a key area of economic growth.

Although the UK Government’s recently published National Payments Vision makes it clear the country will continue to prioritise and protect the public’s access to cash, interest elsewhere in CBDCs has developed more rapidly.

Recent findings from the US-based Atlantic Council found that 66 countries are in the advanced phase of the CBDC exploration, which includes the development, pilot, or launch of a digital currency, with three countries, the Bahamas, Jamaica, and Nigeria, having fully launched a CBDC.