Harnessing a digital Pound to enhance sustainability in the UK.
Written by William Lorenz at The Digital Pound Foundation
The World Economic Forum estimates: “The transition to a circular paradigm is projected to create up to 8 million new jobs by 2030. Such transformative potential is reinforced by estimates suggesting that the circular economy could unlock $4.5 trillion of economic growth by the end of the decade”. A digital pound could support the development of an efficient, convenient and transparent circular economy. It could serve as the foundational platform on which innovations can flourish, interconnecting technologies including Blockchain, Artificial Intelligence (AI) and the Internet of Things (IoT). This not only promises a reimagining of today’s inefficient services but also paves the way for a sustainable future. To explain how a digital pound could achieve this, let us think about a family of 4 - the Wilsons. They are eco-conscious and teach their children how to make sustainable choices. Aside from making a positive impact on the environment, they are always looking to save money - and this is where innovative solutions powered by the digital pound come into play. A digital pound could empower our hypothetical Wilson family across various aspects of their sustainable lifestyle.
Recycling via deposit return schemes
Previous schemes to encourage recycling, such as paper voucher rewards, receiving cash in exchange for returning empty bottles and cans to store, or free postage to return packaging to the manufacturer had good intentions but often lacked proper incentivisation and were inconvenient and time-consuming.
With the advent of the digital pound, the Wilsons have witnessed a transformation in their recycling experience. Now, when they drop off recyclables at a reverse vending machine, the reward process is instant and hassle-free, with refunds automatically, efficiently and directly credited to a digital wallet held on their smartphone, upon validation of the item returned. This convenience motivates the Wilsons to continue with their recycling activities and allows them to accumulate refunds over time. The funds can then be used to purchase eco-friendly products, support a charity, or simply contribute to their family budget. The digital pound has seamlessly integrated recycling incentives into their lives, driving positive environmental impact and financial rewards.
Pay-as-you-recycle waste initiatives
The Wilsons appreciate the “pay-as-you-recycle” model, where they are charged based on the amount of waste they generate. Using the digital pound, they can easily track their waste disposal costs in real-time and have set up automatic payments from digital wallets, ensuring they only pay for the waste they generate every time their bin is emptied. This then enables the taxes paid for refuse collection to reflect the amount collected and for the Wilsons to benefit from reductions where items are recycled.
Efficiency is further enhanced by smart bins which contain IoT sensors. The community that the Wilsons live in decided to implement these and they recognise not only the amount of non-recyclable waste that must be paid for, but also recycling not covered by the formal Deposit Return Scheme, such as paper and certain plastic containers which will be rewarded. When the Wilsons dispose of an item the sensors in the bin recognise what type of material it is made from and trigger a smart contract execution. The reward amount due - even if it’s just a couple of pennies - gets credited to the Wilsons’ digital wallet automatically and instantly. This innovative waste management system is far more convenient, increasing the Wilsons’ recycling activity. When out and about the Wilsons often pick up waste from the street to keep their neighbourhood looking clean and tidy. Street bins equipped with a device register the person disposing of the item and automatically credit their account. The children particularly like how this boosts their pocket money! Sometimes their school runs neighbourhood initiatives to encourage children to pick up litter and learn about recycling. Credits added to the school account contribute to new play equipment and learning resources.
Clothes recycling rewards
As parents, the Wilsons are aware of how quickly their children grow. The cycle of outgrown clothes presents an opportunity to promote sustainability while managing their family budget. They participate in clothes recycling programs and are rewarded with small payments facilitated by the digital Pound and deposited directly into their digital wallets. Some of the Wilsons’ friends enjoy the cash rewards received for clothes recycling, however, they do not have bank account facilities. They can receive their funds in the form of digital currency, directly to a CBDC wallet on their smartphone.
Circular economy sharing & rental platforms
The Wilsons own an electric car and are always mindful of charging point locations. Friends, who live both in and out of town are happy for the Wilsons to park on their driveway and use their charging point while they are away and are paid automatically for any usage. When the Wilsons don’t need it, they make their car available for others to use and get paid automatically from the moment the car is removed from their drive to when it’s returned. Smart contracts handle the payment, insurance, damage protection etc with devices at home and in the car recording usage plus any damage that might occur which is automatically covered by the insurance linked with the smart contract.
Pay-per-use arrangements
The Wilsons have always been mindful of their utility consumption. They have smart meters installed which measure daily consumption in real-time, figuring the exact amount due each day. The family gets full visibility into their utility usage with instant billing based on exactly what’s used. The smart meters are integrated with an AI system that monitors consumption and provides insights and recommendations on how to be more efficient and sustainable. The system might also suggest an alternative utility provider that would be more cost-effective. Pay-per-use models often involve micropayments for small amounts of resources consumed and this is exactly where a digital pound can add value and help create an efficient, secure and transparent ecosystem.
Grant disbursements
During the pandemic, over £22.5bn of Covid grants were distributed via 4.5million payments and whilst necessary to support 15 million jobs, the total value of error and fraud under highly pressurised circumstances was estimated to be £3.2 – £6.4bn according the UK Government. Energy subsidy grants have also been offered and days before the voucher expiry deadline, more than £100m worth were still to be claimed, largely by those using prepayment energy meters – who often are on low incomes and therefore are likely to need financial support the most. This lack of redemption was thought to be due to having to apply to get the money, compared with others with energy provider accounts whose grant was applied automatically. With a digital Pound, grants would be distributed directly using the mobile phone number as an identifier and redeemed directly to a wallet, bank account or automatically as a pre-payment meter top-up through a smartphone application. There would be significant distribution efficiencies, reductions in cost and fraud plus the ability to ensure those most in need receive the grants they are due.
Why a digital pound is needed
The development of a sustainable circular economy is underpinned by several critical building blocks which are essential in creating a robust and efficient ecosystem that fosters sustainability. These include Blockchain technology, IoT and smart sensors, Smart contracts, AI and data analytics. Among these building blocks, the digital pound emerges as a pivotal and indispensable component enabling: efficient and cost-effective micropayments; instant transactions; transparency; enhanced security; digital wallets and programmable payments. With the right design, the digital Pound has the potential to revolutionise the way we approach sustainability and resource management in a circular economy. It can serve as a trusted, secure and accessible digital currency, connecting various building blocks to streamline microtransactions and foster innovation.