The U.K. government said on Monday that British companies and consumers would likely need a digital edition of the pound and officially requested public feedback on introducing a central bank’s electronic currency.
Britain, the second-largest financial hub in the world, needs to catch up to old colonies like Nigeria, the Bahamas, and Jamaica in implementing a digital currency. According to PwC, over 80 percent of the world’s central banks are contemplating or have already launched digital currencies. “Although currency is here to stay, an electronic sterling issued and supported by the Bank of England may be a new, trustworthy, accessible, and user-friendly payment method,” said Jeremy Hunt, the head of the Treasury. “This is why we want to examine what is feasible first while always ensuring financial stability.”
Almost two years have passed since the Government and the Bank of England stated that they were investigating the introduction of a digital currency. As Treasury chief, Prime Minister Rishi Sunak proposed dubbing the venture “Britcoin.” Nevertheless, the Bank of England has emphasized that future money should not be confused with Bitcoin and other cryptocurrencies. The Bank of England states on its website that a new, backed currency by the central bank would be “stable and keep its value over time,” compared to cryptocurrencies that may fluctuate dramatically and jeopardize investors’ holdings.
In recent months, this industry’s volatility has increased demands for more robust regulation. As a result of the crypto exchange FTX’s collapse and insolvency in November, its founder, Sam Bankman-Fried, was charged with fraud in December. According to the bank, the proposed digital currency would be priced in pounds, with 10 pounds of electronic money always equivalent to a 10-pound note. The cash held in a digital wallet might be used to pay for products and services online.
Advocates of central bank digital monies argue that they simplify and reduce the cost of digital transactions and provide access to the financial system for those without bank accounts. This was one of the grounds why the Bahamas introduced the first digital money in 2020. Since then, Nigeria and Jamaica have done the same thing, and China and more than 20 other countries are running tests. The United States and European Union are evaluating the introduction of digital currency.
Yet digital currencies also pose hazards, such as cyberattacks, privacy problems, and the possibility of illegal usage. Critics claim that digital cash issued by central banks is safer than bank deposits, so they may divert funds from commercial banks and destabilize the financial system.
Former Bank of England Governor Mervyn King, a voting member of the House of Lords, recently stated that a digital pound would have “risks but no clear advantages.” Although such virtual currencies may benefit nations with weak banking institutions, this situation differs in Britain. “The administration has said that it wishes the United Kingdom to be on the forefront of technological advancement, crypto-assets, and fintech, but we must be judicious and avoid a misguided enthusiasm for all crypto,” added King.
