UK authorities on Monday said UK businesses and consumers are likely to need a digital version of the pound and formally requested public comment on the idea of launching a central bank digital currency.
The UK, home to the second largest financial center in the world, lags behind former colonies like Nigeria, the Bahamas and Jamaica in adopting a digital currency. According to the consulting firm PwC, more than 80 percent of the world’s central banks are considering or have already introduced digital currencies.
“While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new payment method that’s trusted, accessible and easy to use,” Chief Financial Officer Jeremy Hunt said in a statement. “That’s why we want to look at what’s possible first, while always making sure we’re protecting financial stability.”
The call for public participation comes nearly two years after the Treasury and Bank of England said they were considering launching a digital currency.
While Prime Minister Rishi Sunak suggested naming the initiative “Britcoin” when he was chief financial officer, the Bank of England has stressed that the potential currency should not be confused with cryptocurrencies like Bitcoin.
With the backing of the central bank, the new currency would be “reliable and will hold its value over time,” unlike cryptocurrencies, which are highly volatile and can threaten investors’ holdings, the Bank of England says on its website.
This industry has been particularly volatile in recent months, with calls for more regulation escalating. Crypto crashes last year as crypto exchange tanked assets FTXNovember’s multi-billion dollar collapse and bankruptcy sparked fraud charges against the founder Sam Bankman Fried.
The proposed digital currency would be denominated in pounds, with 10 pounds of digital currency always equivalent to a 10-pound note, the bank said. Stored in a digital wallet, the currency could be used to pay for goods and services electronically.
Proponents 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 the unbanked.
This is one of the reasons the Bahamas was the first country to adopt a digital currency in 2020. Nigeria and Jamaica have since followed, and China and more than 20 other countries are conducting test projects. The US and European Union are considering the introduction of digital currencies.
But digital currencies also come with risks, including cyberattacks, privacy concerns, and the possibility that criminals could use them.
Because money invested in central bank digital currencies is safer than bank deposits, they can also rob commercial banks of savings 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 could be useful in countries that don’t have effective banking systems, this is not the case in the UK, he said.
“The Government has said they want the UK to be at the forefront of innovation, crypto assets and fintech, but we need to be selective and not be driven by an undue enthusiasm for all things crypto,” King said.
