The Bank of England and the Treasury have announced plans to explore the creation of a central bank digital currency. The UK is the latest nation to start testing the idea of a central bank-issued digital currency, although this type of currency has so far been mostly used as a substitute for cash. in circulation rather than savings deposits. Chancellor Rishi Sunak tweeted “Britcoin?” the announcement of the creation of a working group to study this idea.
Central bank digital currency (CBDC) is a relatively new category of digital currency, but these currencies are not decentralized like bitcoin and are not intended to replace retail banks. And because digital currency is issued by a central authority, there is no promise of anonymity – unlike cash versus card payments.
China has been using its central bank digital currency or “digital yuan” since 2014 for current transactions.
CBDCs are a digital twin sovereign currency of physical money, which raises big questions for central banks and retail banks around the world, as they could make foreign exchange transactions much easier and change the way people decide. to hold deposits in bank accounts.
Towards a “britcoin”?
The Bank of England said that a CBDC would be a “digital currency issued by the Bank of England for use by households and businesses” that would exist alongside cash and bank deposits, rather than them. replace. However, the central bank is only exploring the regulatory aspects of introducing a digital currency. “The government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK and will engage widely with stakeholders on the benefits, risks and practicalities of ‘such a decision.
In contrast, the Bank of England and the Treasury have created a task force to observe the role the authorities would play if a CBDC – or a sovereign digital currency – were indeed put in place. CBDCs rely on blockchain-based accounting techniques but, being backed by a central bank, the currency would not exhibit the price volatility of cryptocurrencies like bitcoin.
Sweden’s Riksbank has been experimenting with an e-krona since 2017 as a way to deal with the declining use of cash in the nation. But these are still the early days. Bloomberg reported this week that the Riksbank believes the nation could have a sovereign digital currency within five years. The UK task force “will coordinate the exploration of the objectives, use cases, opportunities and risks of a possible UK CBDC”. It will also study use cases in the UK context and monitor developments in international CBDCs.