The United Kingdom is exploring the potential of creating a digital currency that is backed by the central bank of a major global economy.
The Bank of England and HM Treasury announced on Monday that the Chancellor, Rishi Sunak had asked them to look at the case for a new “Britcoin”, or central bank-backed digital currency.
The move is a big change considering that seven years ago in 2014, the Bank of England warned that the digital currency Bitcoin could pose a threat to financial stability in the UK – should it see widespread adoption.
In 2019 the chairman of the US Federal Reserve, Jerome Powell, said that Facebook’s Libra cryptocurrency project, “cannot go forward” until serious concerns are addressed.
But now the Bank of England and HM Treasury have announced the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to “co-ordinate the exploration of a potential UK CBDC.”
The idea is that a Bank of England (BoE) digital version of sterling could potentially allow businesses and consumers to hold accounts directly with the bank.
Essentially the CBDC would be a new form of digital money issued by the Bank of England and for use by households and businesses. It would exist alongside cash and bank deposits, rather than replacing them.
But as the use of actual cash declines, a number of other central banks are also seeking to define their own strategies for CBDCs.
And it is important to stress that the British 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.”
However the taskforce will seek 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.
To this end, the taskforce will co-ordinate exploration of the objectives, risks etc of a potential UK CBDC. The taskforce will also develop the design features that a CBDC must display in order to achieve UK goals.
The taskforce also assess the overall case for a UK CBDC, and monitor international CBDC developments “to ensure the UK remains at the forefront of global innovation.”
The Bank of England has also announced it will establish a CBDC Unit.
This new division of the Bank of England will lead its internal exploration around CBDC. It will also lead the Bank’s external engagement on CBDC, including with other UK and international authorities.
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