United Kingdom may get its own‘britcoin’

Another contender has entered the race by countries to develop their own digital currencies.

This week the Bank of England and the United Kingdom treasury announced the joint creation of a central bank digital currency (CBDC) taskforce.

It will be co-chaired by the Bank of England’s deputy governor for financial stability, Jon Cunliffe, and the treasury’s director general of financial services, Katharine Braddick.

After the announcement, the chancellor of the exchequer, Rishi Sunak, took to Twitter to jokingly dub the country’s future digital money “Britcoin”.

The concept of a CBDC is inspired by cryptocurrency, but is different insofar as it is backed by a country’s government. In the past year, cryptocurrencies such as bitcoin and ethereum have made meteoric market gains, partly sparked by Covid-19, spurring many to take the future of digital money more seriously.

In a CBDC system, a payment is a transfer of a central bank liability, recorded on a ledger. The ledger could be centralised, decentralised — through the use of distributed ledger technology — or a combination of the two. Cryptocurrencies are currently the main users of distributed ledger technology.

In a statement, the Bank of England clarified that it envisions the UK’S CBDC would exist alongside cash and bank deposits, rather than replacing them.

“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 doing so,” the statement read.

“The taskforce aims to ensure a strategic approach is adopted between the UK authorities as they explore CBDC, in line with their statutory objectives, and to promote close coordination between them.”

The taskforce will also evaluate the potential risks of introducing a CBDC and monitor international developments around digital currencies “to ensure the UK remains at the forefront of global innovation”.

China has already pulled ahead of other major economies by creating and trialling its own CBDC. The People’s Bank of China has been working on the project since 2014.

The Bahamas has its own digital currency, called the Sand dollar, and Brazil has plans to launch its CBDC in 2022.

In March 2019, the South African Reserve Bank invited bids from private companies to develop CBDC infrastructure. The reserve bank later announced it was looking into the feasibility of a digital currency.

Over the past three years, the Intergovernmental Fintech Working Group — which the South African Reserve Bank is a member of — has been testing the use of distributed ledger technology by financial institutions.

Earlier this year the working group announced the second phase of its Project Khokha, which will issue, clear and settle debentures (a debt instrument companies issue to raise capital) on a distributed ledger using token money.

In October last year a group of seven central banks, including the Bank of England, released a report setting out some of the core features to consider in the development of CBDCS.

The report recommended that CBDCS should exist alongside other forms of money and that central banks should continue providing and supporting cash for as long as there is sufficient public demand for it. The CBDCS should also not pose a threat to monetary and financial stability, the report noted.