U.K. citizens could be limited to holding £10,000 ($11,900) each in a new digital pound, as the Bank of England seeks to avoid a new central bank digital currency undermining the banking system.

The central bank appeared to favor centralized databases over the blockchain as it seeks a technological basis for the digital currency, which officials said on Monday would be likely to be needed.

"The Bank would place some limits on holdings of digital pounds, at least during its introductory period," to avoid citizens hoarding their assets in safe central bank money and skirting around the commercial banking system, a consultation published today by the central bank and U.K. Treasury said. "We judge that a limit of between £10,000 and £20,000 per individual is likely to strike an appropriate balance between managing risks and supporting wide usability of the digital pound."

The range of holdings would allow 75-95% of U.K. earners to take their salary without breaching holding limits, the document said, but could vary by individual, it added, citing differences based on region, age and gender.

U.K. banks on Tuesday expressed concern that the central bank digital currency (CBDC) could effectively encourage a bank run as customers move to hold central bank money directly, perceived as the safest form of asset.

A separate technical paper published by the central bank said distributed ledger technologies that underlie crypto and blockchain-based solutions "might have advantages in guaranteeing consistency and resilience," while presenting "privacy, scalability and security challenges."

"Centrally governed, distributed database technologies might achieve the ledger requirements without such limitations. Therefore, these technologies might be appropriate for the core ledger design," the technical paper said.

The central bank appears to take a cautious view on the ability to pre-program how funds can be used. While it could allow money held in trust to be released when smart contract conditions are met, or ensuring taxes get paid automatically, that functionality also changes the nature of money as a freely exchangeable good.

“The Bank will not implement central bank-initiated programmable functions,” the technical document said. “Instead, the Bank would provide the necessary infrastructure for the private sector to implement programmability features for users. Those features would require user consent.”

The central bank said it would allow private sector companies – such as those providing anti-money laundering checks on wallets or offering analytics services – to offer programmability on top of central bank infrastructure, but said any functions shouldn’t reduce simplicity or performance.

Regulated private intermediaries would have privileged access to the central bank’s core infrastructure, the consultation said – but personal holdings will appear on the central bank’s ledger, not on the balance sheet of the wallet provider.

"The digital pound would have at least the same level of privacy as a bank account and would also allow users to make choices about data use,” the consultation said.

It won’t be anonymous, but neither the government nor the central bank will have access to personal data, and the police will have access only on a “fair and lawful basis.” The central bank said it is still considering how to set limits if corporations, and even financial firms, should get access to the digital currency too.

The consultation is open until June 7.

Read more: UK to Start Further Development Work on ‘Likely Needed’ Digital Pound

Update (Feb. 7, 2023 14:11 UTC): adds more detail from the fifth paragraph onwards.