Bank of England’s digital pound faces up to lack of trust in public institutions

Central banks have their work cut out earning an increasingly scarce commodity: the trust of the public

The public’s trust in institutions plumbs new lows each year. Conspiracy theories that were once fringe opinions espoused primarily on obscure message boards grow in prominence every day. It is in this strange milieu of credulity and doubt that central banks will have to launch their revolutionary attempts to become issuers of digital currency.

The 2024 edition of the Edelman Trust Barometer indicates that the UK is now among the least trusting countries, with trust in government falling more rapidly year on year than anywhere except Colombia, which still trusts its government more than the UK.

The Bank of England has published its analysis of more than 50,000 responses to its 2023 consultation paper on the digital pound. Privacy is the central theme, with a full chapter devoted to ‘Users’ rights, privacy, and protections’, reflecting citizens’ concerns that a digital pound could be used to encroach their rights.

The bank acknowledges that respondents’ main concerns were that ‘the Bank and the Government would use the technology and processes of the platform model to breach users’ privacy actively for surveillance purposes, for example, to track individuals’ spending habits.’

It is clear that the Bank understands that the main challenge it will face in implementing a central bank digital currency is building public trust. In pursuit of this, the Bank determines that neither it, nor the government, will have the capacity to embed rules in users’ money on how or when it can be spent.

This rules out some of the use cases that commentators have speculated on. While the digital pound would permit programmable payments, that would enable users to earmark funds to be released to merchants on delivery of goods, functions like state benefit payments that could only be spent on certain goods or services are unlikely to materialise.

Further to this, some respondents believe that ‘the Bank would be able to link people’s identity to transaction data and that digital identification would enable government surveillance’. The Bank describes this as a ‘misconception’.

While the Bank has certainly committed to leaving the business of identity management to commercial banks, the advent of artificial intelligence means that it will not be a simple matter to ensure that identifying an individual from transaction data is technically impossible, rather than just not policy.

The Bank is committing to ‘exploring technological options that would prevent [it] from accessing any personal data through the Bank’s core infrastructure’. Exploring the privacy-enhancing techniques to achieve this will be one of the Bank’s most important responsibilities as it pursues the development of the digital pound.

Already, it appears that opinions on the appropriate method for protecting privacy are divided. In the Technology Working Paper, the Bank highlights that ‘emerging types of PETs such as zero-knowledge proofs, homomorphic encryption techniques and blind proofs’ divided respondents, with some highlighting that these are complex and unproven when compared to more well-established techniques like data pseudonymisation.

But while the Bank seems to take seriously the technical challenge of delivering privacy and the importance of overcoming it, the biggest challenge it will face is communication. Even the most robust and privacy-protecting system the Bank can design will still have been designed by the Bank.

A section of the public will use that fact as reason enough to regard the digital pound as a government surveillance project and can never be convinced otherwise. The Bank’s goal should be to ensure that section is as small as possible. This will take more than a nicely animated educational YouTube video.

With a deeply rooted culture of mistrust in the state taking hold, reversing it goes far beyond the central bank’s remit or capacity. But perhaps, with a commitment to technical rigor and transparency and a thorough communication and public education strategy, the naysayers can be a small enough group that the digital pound can still succeed.

Lewis McLellan is Editor of the Digital Monetary Institute at OMFIF.

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