Tag: Digital Pound

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Britcoin the new UK digital pound planned

Digital pound

Britcoin is a potential British digital currency that would be issued by the Bank of England and backed by the Government.

It would be tied to the pound and have a stable value, unlike cryptocurrencies such as Bitcoin. It would be accessible through digital wallets and interchangeable with cash and bank deposits. The Treasury and the Bank of England are consulting on its launch, which could take place by 2030.

Britcoin could be used for everyday transactions, both in-store and online, and could make payments more efficient and enable innovation. However, some MPs have warned that Britcoin could cause severe financial damage and undermine the role of banks.

Some MPs have warned that Britcoin could cause severe financial damage and undermine the role of banks for several reasons.

Concerns about introducing a digital pound

  • Britcoin could increase the chance of bank runs, if customers were able to quickly and easily switch their bank deposits into digital pounds, especially during times of financial stress or panic. This could reduce the liquidity and solvency of banks and make them more vulnerable to failure.
  • Britcoin could also raise the cost of borrowing for banks and consumers, as banks would need to replace the funding that they would lose from deposits with more expensive sources. The Bank of England estimated that if 20% of bank deposits turned digital, it could result in a rise in interest rates on commercial loans.
  • Britcoin could pose risks to data privacy and security, as the government or third parties could potentially access, track, or control how users spend their digital funds. This could raise ethical and legal issues and require robust regulation and protection.
  • Britcoin could also have unintended consequences on the wider economy and society, such as affecting monetary policy, financial inclusion, innovation, and competition. The MPs said that the benefits and costs of Britcoin should be clearly evidenced before any decision is taken to introduce it.
Digital £ pound
Art illustration: Digital £ pound proposal – Britcoin

The development of a state-backed ‘digital pound’ should proceed with caution, MPs have warned.

The benefits of the currency are still unclear and there must be systems in place to protect cash access and privacy, the Treasury Committee said in a report.

The Bank of England (BoE) and the Treasury have been consulting on the idea since February 2023. They are currently designing what such a system could look like. The CBDC would be directly issued by the Bank of England (BoE), just like banknotes.

This means people would have all the same safety and security that they have with their cash currently, which is different to cryptocurrencies that fluctuate in value and are generally run by private companies.

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Singapore to pilot use of wholesale central bank digital currencies in 2024

Central bank digital money

It was reported Friday 17th November 2023 by the city-state’s central bank that Singapore will be piloting the live issuance and use of wholesale central bank digital currencies in 2024.

During the pilot, the Monetary Authority of Singapore, (MAS) will partner with local banks to pilot the use of wholesale CBDCs to facilitate domestic payments.

What is a CBDC?

A CBDC is a digital form of a country’s fiat currency, issued and regulated by the central bank or monetary authority of that country. CBDCs are different from cryptocurrencies, which are decentralized and not backed by any government.

Singapore is one of the countries that has been actively exploring the potential of CBDCs, both for wholesale and retail purposes. Wholesale CBDCs are meant for interbank transactions and cross-border payments, while retail CBDCs are meant for general public use and everyday payments.

CBDC MAS timeline

In November 2021, the Monetary Authority of Singapore (MAS) launched Project Orchid, a retail CBDC project that aims to build the infrastructure and test the use cases for a digital Singapore dollar. The project will explore the concept of purpose-bound digital Singapore dollars, which allow senders to specify how and where the money will be used.

In August 2021, MAS announced Project Dunbar, a wholesale CBDC project that involves the collaboration of the Reserve Bank of Australia, Bank Negara Malaysia, and South African Reserve Bank. The project will develop prototypes of shared platforms for cross-border transactions using multiple CBDC’s.

In June 2021, MAS published a monograph on the economic considerations of a retail CBDC in the Singapore context. The monograph concluded that there is no urgent case for a retail CBDC in Singapore, but MAS wants to be prepared in case the situation changes in the future.

In April 2021, MAS extended the regulatory sandbox for Project Ubin, a wholesale CBDC project that started in 2016. Project Ubin has successfully demonstrated the feasibility of using blockchain technology for clearing and settlement of payments and securities.

Singapore to pilot use of wholesale central bank digital currencies in 2024

In March 2021, MAS joined the Multiple CBDC (m-CBDC) Bridge initiative, a wholesale CBDC project that involves the Bank of Thailand, the Hong Kong Monetary Authority, and the Bank for International Settlements. The project will explore the use of distributed ledger technology to enable real-time cross-border transactions using multiple CBDC’s.

Process

Banks will issue tokenized bank liabilities in the form of claims in balance sheets. Retail customers can then use the tokenized bank liabilities in transactions with merchants, who will then credit these bank liabilities with their respective banks. Tokenization refers to the process of issuing a digital form of an asset on a blockchain.

The CBDC will then be automatically transferred to the merchant as a form of payment during the transaction.

Many central banks are testing and exploring their own digital currencies, includung the UK and U.S.

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Digital £ Pound Sterling

Digital £ pound

The digital pound is a proposed new form of money that would be issued by the Bank of England and backed by the government. It would be similar to a digital banknote, enabling you to use it in-store or online to make payments.

It would not be intended to replace cash, but complement it. The digital pound is also known as digital sterling or Britcoin.

Bank of England and UK Government

The Bank of England and HM Treasury are looking at the idea of a digital pound because they think it might offer a new way to pay, help businesses, build trust in money, and better protect the UK’s financial system. They have published a Consultation Paper, which explores the need for the digital pound and proposes a set of design choices for it. They are also engaging with businesses and communities to get their views on the digital pound.

The digital pound is not a cryptocurrency or cryptoasset. Unlike cryptocurrencies, which have volatile values, the digital pound would be issued by the Bank of England and have a stable value, just like banknotes.

I promise to pay the bearer on demand the sum of £10.00

The digital £ is coming to a bank near you or more likely, an app near you

£10 in digital pounds would always have the same value as a £10 banknote.