A central bank digital currency (CBDC) could be a “new frontier” for the British financial system, the Bank of England’s deputy governor Jon Cunliffe told MPs at a Treasury Committee meeting this morning
Dubbed Britcoin (see what they did there), a digital pound “could have huge benefits for the economy and for society”, he said.
But some critics, including former Bank of England governor Mervyn King, are calling Britcoin a “solution in search of a problem”.
Others are heralding the end to cash, to which Cuncliffe agreed, but not because of Britcoin.
“Cash will decline not because digital options are created. Cash will decline because it’s not usable, and then digital options will be created,” he said.
Other critics see Britcoin’s influence as more insidious. Their critique is somewhat justified.
At the user level, paying with Britcoin probably won’t feel any different from using any other form of digital payment system, like a debit card or Revolut account.
Britain’s fintech sector is globally recognised, and digital payment systems are in abundance, so, the critics ask, what is the point of Britcoin?
Through the power of blockchain, Britcoin would make it a bit easier to transfer money to one another, without the need for sharing bank account details, IBANs etc.
Wholesale transfers of large sums between financial institutions would also be simpler.
But this is hardly a justification for overhauling the entire UK monetary system.
Furthermore, the UK has what is called Real-Time Gross Settlement (RTGS), which allows for instantaneous transfer between parties.
The government might tout these efficiency measures, but the murkier question of sovereign control should not and cannot be ignored.
CBDCs: The anti-crypto cryptocurrency
CBDCs differ from cryptocurrencies in that they are distributed and controlled by a centralised issuer (i.e. the central bank), in clear contrast to the decentralised philosophy of cryptocurrency.
One of the most fundamental differences between crypto and CBDCs is privacy: Britcoin users will not be anonymous in the way that Tether, Bitcoin or Dogecoin users are.
If anything, CBDCs could greatly expand the control governments have over where and when you spend your money.
It’s not difficult to envision benefits paid out in Britcoin but banned from use at the off-license. Or limits put on how much an individual can spend in the bookies.
Decentralised finance (DeFi) presents a true risk to sovereign control over financial systems, so when the critics suggest that Britcoin or any other CBDC is a reactionary move against cryptocurrency, it’s worth considering.
Other countries have pulled ahead in the race to launch a CBDC, although only a few have officially launched one, including Jamaica, The Bahamas and Nigeria.
China, Singapore, France and India are currently piloting their own CBDCs, while 114 countries representing 95% of global GDP are exploring the technology.
Some of those countries, namely China and India, have some of the most anti-crypto regulations in the world.
Makes you think.