If there is one thing most of us know about cryptocurrencies, it is that they aren’t linked to a specific country of origin. So why does the UK chancellor want to explore the possibility of a Bank of England backed digital currency, and should we be expecting to pay in ‘Britcoins’ any time soon?
Here’s why the Bank is so interested in entering the sometimes-murky world of digital money.
Q. What do we know about ‘Britcoin’?
Not much yet. The Bank of England and Treasury issued a statement saying they are setting up a taskforce to explore the possibility of setting up a digital currency.
“It would exist alongside cash and bank deposits, rather than replacing them,” the statement explains. No decision has been made, and the taskforce will weigh up the pros and cons before deciding if we need one.
Chancellor Rishi Sunak dubbed the new digital currency in a tweet the same day, an obvious twist on the name of the best-known cryptocurrency, Bitcoin.
Q. How would ‘Britcoin’ work?
The Bank of England is keen to point out that its own digital currency would not be a cryptocurrency or crypto asset in the strictest sense, because unlike Ether and Bitcoin, it would be issued by a central bank.
Instead, it would be a Central Bank Digital Currency (CBDC), denominated in pounds, where £10 of ‘Britcoin’ would always hold the same value as a £10 note.
Hopefully that would keep the Bank’s ‘Britcoin’ more stable than Bitcoin, where for the latter the price is very volatile and attracts large numbers of speculators.
The digital currency would possibly use distributed ledger technology, which is what keeps crypto-assets secure and constant despite the lack of a central administrator, but this is not a given. The Bank’s own paper on the subject, published last March - says it might not be based on this, and shows a diagram with the Bank of England holding a ‘core bank ledger’ at the top of the pyramid, facilitating all of the transactions below it.
Q. What advantages would ‘Britcoin’ have?
It could change ordinary savers and spenders’ relationship with the Bank of England. At present, we only spend the Bank’s money when we use banknotes.
Most of our transactions are now electronic, so we are using money ‘created’ by high street banks and their challengers, who settle up with each other at the end of the day using the Central Bank of England to do so.
With ‘Britcoin’, we could all use the Bank of England’s money, cutting out the middleman altogether, potentially reducing some fees and profits for commercial banks. It would also remove any risk of money being held by a commercial bank that then went bankrupt - although for most of us this is mitigated by the government’s Financial Services Compensation Scheme (FSCS), which will pay out if a bank holding our savings is unable to.
Q. Is any other country doing this?
China has piloted a digital yuan, and hopes it will be in use by the time of the 2022 Olympics , while more than 60 other countries are exploring similar schemes.
Q. How long before I can spend a ‘Britcoin’?
We may have a while to wait before the UK makes a decision on its own digital currency. So far, we have a taskforce and two external engagement groups, which suggests that there will be a great deal of discussion before action.
Meanwhile, if you believe the pundits on YouTube, it is possible for a competent coder to create their own Cryptocurrency in as little at 15 minutes. Perhaps we should be grateful that the Bank of England will put a little more thought into its own potential digital offering.