The Bank of England is debating whether to issue a digital currency

Would Brits like a digital fiver? The Bank of England is considering whether to issue an electronic version of its banknotes.

UK officials published a discussion paper today about the possibility of issuing a digital pound sterling, adding to the debate among central banks about how to respond to declining cash usage. The issue is particularly important in the UK, where debit cards overtook cash as the most popular form of payment three years ago; debit cards accounted for 39% of transactions in 2018, compared with 28% for physical notes and coins.

This is of interest to policy makers because there's a crucial difference between physical notes issued by a central bank and the digital money held in a current account or digital wallet. Cash is issued directly by the central bank, the lender of last resort, while debit cards and payment apps depend on the stability of commercial institutions and can be more vulnerable. As cash usage drops, more than a dozen countries are either researching or piloting central bank digital currencies, according to the Bank for International Settlements.

The BoE says it hasn't made a decision on whether to introduce a digital pound. If it were to do so, the new legal tender would exist alongside physical cash and wouldn't replace it.

"The use of banknotes-the Bank's most accessible form of money-is declining, and use of privately issued money continues to increase, with technological changes driving innovation," the BoE wrote on its website. "As the issuer of the safest and most trusted form of money in the economy, should the Bank provide the public with electronic money-or a Central Bank Digital Currency (CBDC)-as a complement to physical banknotes?"

Britain's central bank acknowledged that an electronic pound could be destabilizing for its commercial banking system. A digital pound, for example, could make it easier for consumers to abandon their banks in a crisis. At the same time, there could also be benefits: A digital currency could be built on modern technology that would be more efficient and include more consumers, while making cross-border payments cheaper and faster by using new payment rails.

As the debate widens, there are many design and technology questions to consider. Those include whether to use a distributed system for validating transactions (similar to the blockchain-distributed database behind bitcoin) or a more centralized authority. The BoE indicated that the system wouldn't need to resemble bitcoin or other cryptocurrencies, although a distributed mechanism could have some advantages. The central bank said it is accepting input until June 12.

In the meantime, China is reportedly among the most advanced countries when it comes to creating a digital currency, and it's been suggested that a digital renminbi could make the currency more attractive internationally, eventually undermining existing reserve currencies. Reports from the BoE and BIS, sometimes called the central bank for central banks, however, haven't addressed that worry and have been focused on the needs of domestic consumers.