To address some of the issues raised by cryptocurrencies like bitcoin, British finance minister Rishi Sunak instructed the Bank of England on Monday to examine the possibility of a new “Britcoin,” or central bank-backed digital money.
Businesses and individuals may maintain sterling accounts directly with the Bank of England and avoid middlemen when making payments, possibly upending the traditional role of lenders in the financial system.
Shortly after that statement, Sunak sent out a single tweet with the word “Britcoin” in it as a reaction.
In other countries, central banks are also considering whether or not to create digital versions of their own currencies, thus opening up the usage of central bank funds that are now exclusive to commercial banks. This may minimize financial stability concerns while also speeding up payments both domestically and internationally.
A CBDC is most likely to be launched in China. The European Central Bank said that it was looking at a digital form of money to go along with paper currency and coins.
Bitcoin – best-known cryptocurrency, according to Governor Andrew Bailey, does not function as a stable store of value or an efficient method to conduct transactions, making it an unsuitable currency for use and a hazardous investment.
The UK financial regulator the FCA has so far taken a sceptical or hostile stance on Bitcoin, banning the sale of crypto-derivatives to UK investors. This has had the knock-on consequence of blocking UK investors from participating in the launch of Bitcoin Exchange Traded Funds which launched recently.
Dark Trading and Britcoin’s Importance
After Brexit, London’s financial centre will face stiff competition from New York for the title of biggest financial hub in the world. Sunak revealed additional steps to keep London competitive during the UK FinTech Week, which kicked off today. As of December 31, the financial industry has been restricted from providing services to EU clients after the United Kingdom left the European Union’s jurisdiction.
According to Sunak, the EU imposed limitations on who may trade shares in London, as well as a two-volume limit. In January, Amsterdam dethroned London as Europe’s leading stock trading centre, helping Britain attract more large investors who prefer “dark” or anonymous trading. In addition to that, similar to stock trading, like it’s given here, there are many people who are involved in currency trading in UK and this is even more applicable for those people who trade with digital currencies, as blockchain technology allows them to make transactions without indicating personal information. Moreover, because of the increased demand for currency trading, there are many FX brokers that provide investors with the ability to trade with digital currencies.
One of the examples of this is Mitrade Forex broker. And according to the Mitrade review, 97 percent of the circulating money supply is made up of modern digital money, which we use to make purchases with our credit cards and to conduct online transactions on a regular basis. The central bank or government does not print digital money; instead, private banks do. An electronic deposit in your bank account is created when a bank lends you money in the form of fresh sterling-denominated electronic deposits in your account. With the issuance of new loans to individuals and businesses, together with their repayment, comes the entire “money supply” of an economy.
This particular arrangement can only be characterized as a historical accident. Bankers who issued deposit receipts in exchange for safeguarding people’s precious metals created modern “fractional reserve” money. It was easier to pay with these notes than it was to use actual metals, thus they began to resemble money. Since individuals seldom withdrew their metals, bankers realized they could create more currency than they had backed by metals, and so bank “lending” was established. These bank deposit receipts are now the figures companies see on their digital bank statements when they check accounts.
CBDC would make it possible for everyone, not only banks, to have access to digital money stored in central bank accounts. Banking books speculate openly whether this would be the biggest upset to the structure of banking in the UK in the last two centuries. The main reason of the Bank of England to investigate CBDC seems to be the danger of non-bank digital currencies produced by unregulated organizations beyond central banks’ jurisdiction – the best known being the “crypto-assets” such as bitcoin.
It’s important to note that central banks are more concerned about currencies issued by large corporations that have billions of users and a global reach. For example, the Diem currency has some backing from social media giant Facebook, and redeemable platform tokens issued by Amazon, backed by the ability to spend on items sold on the platform.
The danger presented by these non-bank currencies would be significantly reduced if a central bank established a CBDC in its place. As opposed to commercial bank money, public digital currency would never be in danger of a “run” and would not need large government bailouts for banks during times of crisis or deposit insurance, which are both now required.
Well-designed public digital currency may also provide the central bank with new and possibly very powerful tools for monetarists to work.
Will Britcon become the best cryptocurrency to invest in, given that it has state backing? Who knows. Crypto is such a fast-moving market that by the time a BoE whitepaper has translated into a crypto coin, the world may have moved on.
The central banks may immediately credit consumers’ CBDC accounts with fresh money during severe economic downturns rather than depending on banks and financial markets to transfer the additional money produced by central banks via QE programs to the actual economy. It has been said that quantitative easing (QE) has inflated asset values and widened inequality. Additionally, the implementation of a universal basic income may be significantly reduced by using a CBDC as a financial intermediary.