Sun | Apr 2, 2023

UK gets closer to launching a digital currency

Published:Wednesday | February 8, 2023 | 12:20 AM
A man walks down the steps in front of the Bank of England in London on February 2.
A man walks down the steps in front of the Bank of England in London on February 2.
UK Chancellor of the Exchequer, Jeremy Hunt.
UK Chancellor of the Exchequer, Jeremy Hunt.
Governor of the Bank of England, Andrew Bailey.
Governor of the Bank of England, Andrew Bailey.
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Britcoin is moving closer to reality.

United Kingdom authorities on Monday said British businesses and consumers are likely to need a digital version of the pound, formally asking for public comment on the idea of introducing a central bank digital currency.

Britain, home to the world’s second-biggest financial centre, is trailing former colonies such as Nigeria, The Bahamas and Jamaica in rolling out a digital currency. More than 80 per cent of the world’s central banks are considering launching digital currencies or have already done so, according to the consultant PwC.

“While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new way to pay that’s trusted, accessible and easy to use,” UK Treasury chief Jeremy Hunt said in a statement. “That’s why we want to investigate what is possible first, whilst always making sure we protect financial stability.”

The call for public input comes almost two years after the Treasury and Bank of England said they were considering introducing a digital currency.

While UK Prime Minister Rishi Sunak suggested naming the initiative ‘Britcoin’ when he was Treasury chief, the Bank of England has stressed that the potential currency shouldn’t be confused with cryptocurrencies like bitcoin.

Backed by the central bank, the new currency would be “reliable and retain its value over time”, in contrast to cryptocurrencies that can fluctuate wildly and threaten the holdings of investors, the Bank of England says on its website.

That industry has been particularly unstable in recent months, escalating calls for greater regulation. Crypto crashes last year tanked assets, while crypto exchange FTX’s multibillion-dollar collapse and bankruptcy in November triggered fraud charges against founder Sam Bankman-Fried.

The proposed digital currency would be denominated in pounds, with ₤10 of digital currency always equal to a ₤10 note, the bank said. Held in a digital wallet, the currency could be used to pay for goods and services electronically.

Supporters of central bank digital currencies say they make digital transactions easier and cheaper and expand access to the financial system, because they can be used by people who don’t have bank accounts.

This is one of the reasons The Bahamas became the first country to introduce a digital currency in 2020. Nigeria and Jamaica have since followed suit, with China and more than 20 other countries running trial projects. The United States and European Union are considering introducing digital currencies.

But digital currencies also present risks, including cyberattacks, privacy concerns, and the danger that they can be used by criminals.

Because money invested in central bank digital currencies is safer than a bank deposit, they also may draw savings away from commercial banks and weaken the financial system, critics argue.

A digital pound would have “risks but no obvious benefits”, former Bank of England Governor Mervyn King, now a member of the House of Lords, said recently.

While such digital currencies may be useful in countries that don’t have effective banking systems, that’s not the case in the Britain, he said.

“The government has said that it wants the UK to be at the forefront of innovation, crypto-assets and fintech, but we need to be selective and not driven by a misplaced enthusiasm for all things crypto,” King said.

AP