The “digital pound” would be controlled by the Bank of England like the pound sterling.
Earlier this year, the Chancellor set up a task force to review the launch of digital currency – dubbed “Britcoin” based on the cryptocurrency Bitcoin.
Consumers could hold the currency in accounts linked to the Bank of England, but it is not decided whether interest rates would be attached to it.
Retailers and other businesses could also accept digital currency instead of debit or credit cards.
People are likely to be limited on the amount of Britcoin they can initially hold, but the British pound could be turned into Britcoin easily and quickly.
Proponents say the currency would give the bank an economic boost in a financial crisis by pouring “Britcoins” into people’s bank accounts.
It could also be faster and cheaper to make online payments and transfer money while reducing banking fees for small businesses.
But critics fear it could lead to financial instability, making it harder for the bank to regulate the economy with policies such as interest rates.
And they fear it could cause loan and mortgage rates to rise, the Mail reports.
The Bank of England is also believed to be less favorable than the Treasury due to a huge number of cryptocurrencies with some investors losing considerable sums.
Their joint working group is expected to report to Mr. Sunak by the end of the year.
Unlike cryptocurrencies, Britcoin will be central bank backed and pegged to the pound, theoretically preventing the value from fluctuating wildly.
China has already tested a digital yuan and US Treasury Secretary Janet Yellen has hinted at a digital dollar.
The European Central Bank is also looking at a digital euro.