A state-backed digital pound is likely to be launched later this decade, according to the Treasury and the Bank of England.
Both institutions want to ensure the public has access to safe money that is easy to use in the digital age.
Chancellor Jeremy Hunt said the central-bank digital currency (CBDC) could be a new "trusted and accessible" way to pay.
But it will not be built until at least 2025.
"We want to investigate what is possible first, whilst always making sure we protect financial stability," Mr Hunt said.
The Treasury and the Bank of England will formally start a consultation for the digital currency, on Tuesday.
Cryptocurrencies are not backed by a central bank and the value can shoot up and down rapidly.
But while it may use technology similar to cryptocurrencies such as Bitcoin and Ethereum, the digital pound, issued by the Bank of England, would be less volatile. Ten digital pounds will always be worth the same as £10 in cash, the Treasury says.
Though, as holidaymakers will know, the value of the pound does change relative to other currencies.
Prime Minister Rishi Sunak asked the Bank of England to look into backing a currency, in 2021, as chancellor.
And in October 2022, Mr Sunak's Financial Service Minister Andrew Griffith warned a lengthy delay could create problems for the economy.
If given the go-ahead, there would then be significant investment to launch the currency.
There are likely to be initial restrictions on how much of the currency any individual or business could hold.
Bank of England governor Andrew Bailey said the digital pound would provide a new way to make payments, "help businesses, maintain trust in money and better protect financial stability".
He stressed the importance of the consultation being the "foundation" for what would be a "profound" decision for the way we use money in the future.
What could a digital pound look like?
• It would replicate the role of cash, in a digital world
• Issued by the Bank of England
• Subject to rigorous standards of privacy and data protection
• Accessed through digital wallets via smartphones or smartcards
• Intended for payments online, in store and to friends and family
• Initial restrictions on how much an individual or businesses could hold
• Countries around the world, including the US, China and the Eurozone, are considering similar proposals.
BDST: 1334 HRS, FAB 07, 2023