Is ‘Britcoin’ coming soon?
The British Treasury and Bank of England have said that they will hold a formal consultation next year on the possibility of introducing a central bank digital currency (CBDC), dubbed ‘Britcoin’.
Central banks the world over are looking into digital versions of their currencies. This is to avoid the monopolisation of digital payments by the private sector as the use of cash has declined further in many countries since the COVID-19 pandemic.
The Bank of England has confirmed that if such a change was to take place, it would be years in the future and the earliest possible date for it to be introduced would be the second half of the decade.
What does it mean?
A consultation paper will set out an assessment before a decision is made on whether to proceed with a CBDC. Financial Minister John Glen has said that a retail CBDC would be used by people and businesses for everyday payments and will help Britain remain at the forefront of innovation and technology in the financial sector. It will also only be put into place if it is found to be ‘operationally and technically robust.’
Who else is considering a CBDC?
Other countries have also been making steps towards introducing their own digital currency. In July, the European Central Bank began a 24-month investigation into the potential launch of a digital euro. After the two-year investigation, there would be a further 3-year implementation period, giving a launch time similar to that of the UK’s potential plans.
Furthermore, China has been front and centre regarding potential CBDC moves and have raced ahead in rolling out trials of a digital yuan in several Chinese provinces. Experts on the matter believe that China will be the first country to fully launch a CBDC.
On the other hand, the US Federal Reserve has been more sceptical. Their worries are shared by other Western governments who believe a CBDC can be used to increase government surveillance. All digital transactions can be tracked online, in contrast to the relative anonymity of cash, raising concerns about the privacy rights of citizens.
Is it a good idea?
As well as the risks to privacy, bankers worry that the introduction of a CBDC in the UK could undermine their role in the financial system, resulting in the risk of a ‘bank run’. This is where consumers place their deposits with central banks directly, rather than keeping their money at the bank.
However, there is an acknowledgement that the world is moving on and that the UK has traditionally, and should continue to be, at the forefront of many new payment systems. Looking toward the future is always a good idea, and if many countries do decide to adopt a CBDC, it is best that the Bank of England has plans in place to implement in time to keep up with other developed nations.
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