The Bank of England (BoE) has officially launched the Digital Pound Lab, a technology sandbox designed to facilitate experimentation for a potential UK central bank digital currency (CBDC), commonly referred to as the “digital pound.” This initiative aims to test functionality, explore innovative use cases, and assess potential business models for a digital pound.
The Digital Pound Lab is not a regulatory sandbox and will not involve real customers or real money payments. Instead, it provides a simulated environment where industry participants and the Bank can engage in hands-on experimentation to test the potential capabilities of a digital pound.
The Lab’s objectives include:
- Co-creating Use Cases: Collaborating with industry to test use cases that will contribute to the assessment of whether to build a digital pound.
- Understanding Business Models: Collaborating with industry to understand potential business models for Payment Interface Providers (PIPs) and External Service Interface Providers (ESIPs).
- Supporting Innovation: Assessing the requirements for a digital pound to provide a platform for innovation.
- Informing the Bank’s Emerging Thinking: Contributing to the Bank’s emerging thinking on digital pound technology and digital currency technology more generally.
Structured Phases for Comprehensive Testing
The Lab is expected to run from August 2025 to July 2026 and will be divided into two phases:
- Phase 1: This phase will test a small number of use cases, aiming to understand whether and how a digital pound could improve existing payment services. Participants will design and build use cases defined by the Bank over approximately three months (August 2025 to October 2025).
- Phase 2: Details for this phase are yet to be announced, but it is expected to build upon the findings from Phase 1 to further explore the digital pound’s potential.
Applications are open to all private and public sector companies and organizations from technology, payments, banking, retail, and other relevant sectors interested in hands-on experimentation with digital pound use cases. Due to limited space and specific project development needs, not all applications may be accepted. Organizations may apply for both phases.
The Digital Pound Lab serves as a testing ground for evaluating the technical requirements of a digital pound, including speed, scalability, resilience, and security. Experiments will focus on key technologies such as distributed ledger technology (DLT), privacy-preserving mechanisms, and interoperability frameworks.
Use cases to be explored include:
- Account-to-Account Payments: Testing the feasibility of direct transfers between users.
- Offline Payment Capabilities: Exploring solutions for transactions without internet connectivity.
- Programmable Money Functionalities: Implementing conditions or rules within the digital currency for specific use cases.
Insights gained from the Lab will inform the development of the digital pound’s blueprint, ensuring it addresses technical, regulatory, and operational considerations. The Bank of England has committed to expanding the Lab’s scope as the design phase progresses, including testing for interoperability with private payment systems and exploring cross-border payment use cases.
While the Bank of England has not yet decided to proceed with a digital pound, the Lab represents a significant step in the exploration process. A final decision on the implementation of a digital pound is expected around 2025, with consumer usage anticipated in the late 2020s.
The launch of the Digital Pound Lab underscores the Bank of England’s commitment to a transparent, collaborative, and innovation-driven approach in its exploration of a digital pound. By leveraging this platform, the Bank aims to ensure that the digital pound, if introduced, is secure, efficient, and responsive to the evolving needs of the UK economy.