UK government considering case for 'britcoin'
Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown, comments on the case for a 'britcoin' UK central bank digital currency…
Until now, government and the Bank of England have maintained a hands-off approach, but now they are dipping their toes into the opaque waters of digital currencies by exploring the potential for ‘Britcoin’. This doesn’t mark a rapid dive into setting up a rival to bitcoin. Far from it. As cryptocurrency investors ride a wave of speculation, the government will be keen to distance itself from what is still seen as the wild west of the payments world.
However, officials clearly believe they can’t ignore the surge of interest in digital currencies, as a means of faster and more efficient money transfers particularly internationally. There is also the threat hanging over central banks, that unless they get their act together and enter the fray, digital currencies backed by big tech, could end up being dominant in the future, especially as more societies drift towards being cashless.
Unlike cryptocurrencies, a Bank of England backed central bank digital currency (CBDC) would, by its very nature, be centralised. This new breed of digital sterling would sit alongside cash and current electronic payments, and could improve the efficiency and cost of retail sales and large value transactions. A CBDC would be much easier to trace unlike cash which is attractive for tax evasion and money laundering. CBDCs are also seen as a way of removing costly low-value coins from the system by offering electronic change instead. Another benefit is that CBDCs could also ensure people have access to money if cash became in short supply in the future.
The fear is that it will be the first step on the slippery slope to a fully cashless society. Although the UK government is keen to stress that coins and notes are here to stay, as the number of digital transactions increases and the withdrawal of money from cashpoints falls, other countries are already inching closer to culling cash altogether.
If CBDCs are adopted as replacement payment systems, they are likely to cause fresh volatility to cryptocurrencies, although the attraction of the decentralised system is still likely to keep crypto firmly in the speculative spotlight. Bitcoin tumbled over the weekend after reaching a high of USD64,800 on Wednesday. Today it’s recovered some ground but is struggling to get past USD56,400, down 13 per cent from its peak, less than a week ago.