The time is right for Britain to launch its own cryptocurrency
The Chinese are already planning a state-backed cryptocurrency. The Federal Reserve has been asked by Congress to look at an American one. This week we learnt the European Central Bank was examining some form of digital money as well. All the world’s major central banks are starting to look at issuing a byte-based currency as well as the traditional paper sort. With complete access to the banking system, and with the credibility to ensure payments are honoured anywhere in the world, it may well be only state-backed cryptocurrencies that can really thrive.
But hold on. If everyone else is launching a crypto shouldn’t the Bank of England be looking at that as well? True, a Britcoin, as it would inevitably be called, wouldn’t have the weight or heft of an American, Chinese or European currency. We don’t have anything like the global strength of those three heavyweight rivals. And yet, paradoxically, that weakness might also be an unexpected strength. A British crypto would be neutral in what increasingly looks like a geopolitical struggle; it would be based on the world’s most trusted legal system; and it would be rooted in the world’s most globalised financial centre. It could easily be a huge opportunity – and one the Bank of England should seize.
Bitcoin, Ether, Litecoin and the rest of the blockchain-based digital currencies have been around for more than a decade now and have been steadily carving out a significant share of the financial market. With its plans for its own currency, Libra, Facebook is leading the charge of the technology giants into the sector, even if so far it is struggling to get that project off the ground. But it is state and central bank backed digital currencies that look set to lead the next wave of innovation.
China’s plans for a digital currency are the most advanced. Officially sanctioned by the government, it may well be launched in the next two or three months as a fully fledged, regulated form of money, accepted as payment in what will soon be the world’s largest economy. Already slightly rattled by that, Congress has asked the Federal Reserve to look into creating a digital alternative to the dollar. And now the ECB, just a little bit behind the curve in the way of EU institutions, is edging on to the same territory with plans for its own crypto.
Is that necessary? The leading monetary economist, Ken Rogoff, argues that only a central bank created digital currency can have the access to the banking system, and the regulatory clearance, to make it a genuine alternative to existing monetary units. Alan Greenspan, the former Fed chairman, who knows a bit about financial systems, isn’t so sure, arguing this week they would have no special advantage over private sector rivals. We will see over the next few years.
One thing is for sure, however. All the major central banks are going to try, and the country that controls the most successful digital money will have immense influence over the global economy.
Reserve currencies have always been about power as much as anything else, and in that sense the digital sort will be no different to their analogue predecessors.
Here is a question for the UK, however. Shouldn’t Britain be getting into that competition? True, on the surface a Britcoin might seem a puny thing compared to a Chinese or American one. We account for less than 3pc of the global economy compared with 24pc for the United
States and 16pc for China, according to World Bank figures. Still struggling to find a way out of the European Union, we are hardly a rising power in the world. Indeed, we often seem to be shrinking by the day. And yet, that said, there are three reasons why a British crypto might fly.
First, it would be completely neutral. Digital currencies already look like part of the bigger power struggle between America and China over who will be the dominant economic power of the 21st century. The European one will no doubt be an attempt to muscle into that competition. But many individuals, investors and companies won’t really want to be caught up in that or forced to pick sides simply in the form of money they use. Britcoin wouldn’t have any pretensions to power politics. It would be completely neutral – and that might make it surprisingly attractive.
Next, we have the legal system. Where there is money, there are usually, somewhat regrettably, lawyers as well. There will be arguments over who owes what to whom and when.
The UK has the most trusted legal system in the world: it is the least corrupt, with some of the best law firms. There is nowhere in the world you would rather settle an argument. It will be fairer than China and cheaper than the US. That too would work in Britcoin’s favour.
Finally, it would be rooted in the City. London has the oldest capital market anywhere in the world. It has networks of global connections, a long history of embracing innovation, and it is the only major city that is both a major technology and financial centre. It has the skills and expertise on tap, and the worldwide reach, to make a digital currency work.
A Britcoin might be really successful. If so, it would be a huge boost to the City, opening up a vast new market and source of business that could last for decades (an important point as we leave the EU). Sure, it might also end up as an embarrassing failure. Trying anything new always comes with the risk of looking stupid. But a competition is not always won by the biggest or richer contestant, at least not completely. Sometimes the nimblest can also come out ahead.
Sterling has been a world leading currency in the past. A digital form could be again. The new governor of the Bank of England, whoever he or she is, should make it a priority to launch one – before it is too late.
‘Britcoin might be really successful. If so, it would be a huge boost to the City, opening up a vast market’