The British may use a digital currency called “Britcoin” in the next decade, in line with plans being considered by the Treasury and the Bank of England.
The consultations, which began this week, should take about four months. This follows the original task force set up by Rishi Sunak in 2021 when he was chancellor and asked the Bank of England to look into a central bank-backed currency.
The proposals involve the creation of a “digital pound” issued by the Bank of England, accessed through digital wallets and interchangeable with cash and bank deposits.
But why is the Bank and the government so eager to participate in the world of crypto, which was previously called the Wild West and is currently recovering from the collapse of the FTX exchange, and what is the digital currency of the central bank? We explain.
Britcoin will be a digital currency pegged to the pound and issued by the Bank of England.
What is Britcoin?
Britcoin is a potential British digital currency to be issued by the Bank of England and backed by the government.
Unlike bitcoin and other cryptocurrencies that are not backed by a “real” currency or asset, the britcoin will be pegged to the pound and the so-called stablecoin.
This means that its value will be stable, just like banknotes: £10 in britcoin digital pounds has the same value as a £10 note.
The digital pound will be created using the blockchain, tokenized and stored in a digital wallet accessible via smartphones or smart cards.
Like private cryptocurrencies, these wallets will most likely be provided by a private company, so you may have to pay these companies to hold your money. However, it is not that different from a traditional bank.
There will likely be initial limits on how much currency any individual or entity can hold.
The Treasury also said that any digital pound would exist alongside cash and bank deposits, not replace them.
What is the meaning of Britcoin?
As cash continues to take up less space in many people’s lives, the idea is that central bank digital money can be used for everyday transactions. This can work in conjunction with the existing payment system, which is dominated by banks, as well as Visa and Mastercard.
There have been speculations that cryptocurrencies could do this, but their value has been volatile, people are not sure who created them, and they rely on exchanges that have had high-profile crashes like FTX. They are also not widely accepted for payment despite having been around for a while.
Digital payments already make up the majority of transactions, which is why the Bank of England said the digital pound could make them more efficient.
“We believe the digital pound can help us maintain confidence in money and protect our financial system, as well as improve payments through efficiency and innovation,” the Bank of England said.
What can people use Britcoin for?
Britcoin, like traditional cash, will be used for day-to-day expenses, online shopping, or payments to family and friends. It is not intended for savings, but it can eventually be used and one day people will be able to earn interest on it.
This will allow people to use the digital pound to buy and sell goods and services, effectively bypassing commercial banks.
But while in-store, online and person-to-person payments will be the digital pound’s initial focus, this could expand in the future, according to the Bank.
For example, it can be used for micropayments or for payments of very small amounts.
This could open up the potential for customers to pay for, say, a small service such as reading a single news article instead of paying a monthly subscription.
People can also use Britcoin to make cross-border payments without the huge fees often charged by major banks.
The Bank of England, along with other central banks, is seeking to bring order to the loosely regulated world of cryptocurrencies.
What is a central bank digital currency and why do central banks like this idea?
Central bank digital currency, or CBDC, is a potential new form of digital money issued by central banks for use by households and businesses for everyday payment purposes. Britcoin would be one of them.
According to the International Monetary Fund, about 100 countries around the world are considering creating their own CBDC. These include the US, China, the Eurozone and Sweden.
Central banks have become interested in digital currencies following the surge in the popularity of cryptocurrencies, which are decentralized and eliminate the intermediaries responsible for processing our payments.
The widespread adoption of cryptocurrencies could cause central banks to lose control over the money supply and payment systems, which could undermine financial and monetary stability, as well as the ability of central banks to control the economy.
On the other hand, CBDC gives central banks even more power: for example, they can encourage or discourage borrowing or spending in digital currency using interest rates directly, instead of influencing the interest rates of banks and building societies, as they do now.
They can also inject money into the economy and encourage it to be spent, such as by limiting its time or only allowing it to be spent on certain things.
And there are concerns that the extra power could be used in less pleasant ways, preventing some people from spending their money.
Thus, although the idea of CBDC comes from cryptocurrencies, the reasons behind them are very different.
Bitcoin was created in 2009 to bypass traditional banks after the financial crisis as a decentralized and unregulated digital currency backed by a network of users.
CBDCs, by contrast, will be pegged to the country’s traditional currency and controlled by central banks, hence regulated and theoretically more stable.
Why the Bank of England…
Credit: www.thisismoney.co.uk /