News

Britain Plans to Create Digital Currency to Preserve Monetary Independence

James L. Flint

• January 25, 2024

The United Kingdom is embarking on a groundbreaking initiative to develop a digital version of the British pound. This move, according to the country's treasury and central bank, aims to safeguard the nation's "monetary sovereignty" in an age increasingly dominated by cryptocurrencies.

Outlined in a consultation paper, the Bank of England and the Treasury contend that it has become increasingly probable for the U.K. to introduce its own digital currency in the future. By doing so, the country can adapt to technological advancements in the face of the global rise of cryptocurrencies.

The paper articulates concerns that the growing popularity of digital currencies could fragment the U.K.'s monetary system, potentially destabilizing the British economy and constraining the Bank of England's ability to enforce monetary policy.

Notably, the document highlights the possibility of major banks and financiers worldwide shifting towards digital currencies for high-value transactions. Launching a digital currency of its own could contribute to preserving Britain's prominent position in the global financial sector.

Thus, a proposed initiative backed by the Bank of England—referred to colloquially as 'Britcoin'—could additionally foster competition in the digital payments industry. Currently at risk of being monopolized by a few dominant players, including big tech firms, this sector would benefit from increased diversity.

The consultation paper also raises a cautionary note regarding cryptocurrency technology advancements. It underscores the potential for lower-cost digital transactions compared to conventional card companies, thereby hinting at a possible paradigm shift in payment preferences.

By proactively embracing innovations in the global financial landscape, the U.K. aims to ensure its financial stability, retain its leading role, and preserve its monetary independence.

The Potential Impact of a Digital Pound on the UK Monetary System

The introduction of a digital pound could have far-reaching implications for the stability and regulation of the U.K.'s monetary system. This paradigm shift has the potential to erode public trust in traditional money and pose challenges to the Bank of England's oversight capabilities. However, it also presents an opportunity for the British pound to maintain its prominence as the national currency, while acting as a bridge between sterling and other cryptocurrencies.

According to a recent paper, a U.K. digital currency would be tethered to the value of British sterling. To facilitate transactions, a core ledger controlled by the Bank of England would be employed. Under this arrangement, individuals could conveniently exchange physical £10 cash for its equivalent in "Britcoin." The paper further suggests that these transactions would occur through anonymized wallets stored on smartphones, ensuring a level of privacy comparable to that of existing cryptocurrencies. These measures are crucial to uphold public trust in the digital pound.

Despite the potential benefits of a digital pound, the Bank of England's report emphasizes the institution's commitment to preserving cash circulation within the system. It acknowledges that 20% of Britons, including 1.2 million adults without bank accounts, still rely on physical money for their preferred mode of payment. Thus, while exploring the implementation of a digital pound, the central bank remains cognizant of the need to accommodate cash-dependent individuals.

Though plans for building a digital pound are yet to materialize, the Treasury and the Bank of England will commence preparations for its eventual creation. However, it should be noted that launching a functioning digital pound may require several years of development and refinement.

In summary, the introduction of a digital pound holds both promise and risks for the U.K.'s monetary system. By leveraging emerging technologies, such as blockchain, the U.K. can strive to enhance financial stability and secure its position in the cryptocurrency landscape. Meanwhile, efforts must be made to ensure the coexistence of traditional cash and digital currency to cater to the diverse payment preferences of the population.