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Bank of England Exploring the Possibility of a Digital Currency
Chancellor of the Exchequer, Rishi Sunak, has put a priority task force in place to explore a Bank of England digital currency (CBDC). The top-level team will consider how a new cryptocurrency will impact the UK economy, along with the potential benefits and risks. The aim is to boost the country’s economy after its recent withdrawal from the European Union.
The Why
Cash is used far less often these days, and cryptocurrencies are rising to prominence rapidly. Considering the market capitalization of cryptocurrency exceeded $2 trillion recently, it’s no wonder that policymakers are interested in exploring the possibility of a central bank digital currency.
Rishi Sunak is looking to ensure that the UK maintains a competitive advantage post-Brexit. This is part of his effort to prove that London will remain an important financial hub despite the loss of business and job cuts due to Brexit. Introducing a Bank of England digital currency will keep the nation at the forefront of innovation.
In addition to this, he wants the country to make the most of the regulatory freedom that has come with leaving the EU. There were no unique measures put in place for the financial services sector in the deal created by London and Brussels at the end of 2020.
Sunak also pointed out that the Bank of England having its own digital currency would help prevent new forms of private money from being made, including cryptocurrencies. “Our vision is for a more open, greener, and more technologically advanced financial services sector,” he said. “The steps I’ve outlined today, to boost growing fintech, push the boundaries of digital finance, and make our financial markets more efficient, will propel us forward.”
In a tweet responding to the HM Treasury announcing the news, Sunak jokingly referred to the new potential digital currency as ‘Britcoin’.
Taskforce Duties
The Treasury and Bank of England have assembled a joint task force to explore the concept. The Treasury’s Director General of Financial Services, Katharine Braddick, and the Bank’s Deputy Governor for Financial Stability, Jon Cunliffe, are leading the team.
Though the launch of a CBDC is considered quite a way off, significant research will go into creating a comprehensive assessment of introducing a UK CBDC. The team will also investigate the main objectives of the potential cryptocurrency and figure out exactly how it will achieve its intended goal – to boost the economy after Brexit.
Two new forums will be established to gather insight from technical experts and key stakeholders. That includes retailers, consumers, financial institutions, businesses, and civil society groups, to gain a varied perspective.
A New Form of Digital Money
At present, the creation of the CBDC is not set in stone, but if it does come to fruition, it will represent a new form of digital money. “If a CBDC were to be introduced, it would be denominated in pounds sterling, just like banknotes, so £10 of CBDC would always be worth the same as a £10 note,” the Bank of England said. “Any CBDC would be introduced alongside – rather than replacing – cash and bank deposits.”
The potential CBDC is for use by households and businesses. A key point made by all parties is that it would not be replacing cash and bank deposits. Instead, it would simply exist alongside them.
Final Thoughts
As with most new things, there are potential drawbacks to the UK’s proposed cryptocurrency. Among the issues are precisely how the Bank of England will get the digital currency into the economy. Not to mention how households and businesses will go about incorporating it into their existing financial plan.
However, the UK’s announcement was positive overall. If properly executed, the proposed plan will likely give the nation a competitive advantage in the fintech industry. “If we can capture the extraordinary potential of technology, we’ll cement the UK’s position as the world’s pre-eminent financial centre,” Sunak said.
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