The Treasury and the Bank of England are discussing a potential digital pound, or central bank digital currency (CBDC). The consultation is launched because both HM Treasury and the Bank want to ensure that the public has access to ‘safe money’ that is easy to use in the future. People’s daily lives are becoming increasingly digital and the new digital currency could also support innovation in the private sector.
The digital pound would be issued by the Bank of England and could be used by households and businesses for everyday payments in shops and online, and would be interchangeable with cash and bank deposits, in addition to cash.
At this point, no decision has been made to introduce a digital pound, but the Bank of England will now, as they say, ‘continue further research and development work’. The public is invited to give their opinion on the plan to be followed.
The consultation is open for comments until June 7, 2023. After that, the coin will enter the “design” phase, which looks at the technology and policy requirements so that development can be accelerated if it is decided to build it.
This is according to a press release on the website of the Bank of England the digital pound would mimic the role of cash in a digital world, meaning that £10 of a digital pound would always be worth as much as £10 of cash.
As the coin will be issued by the Bank of England itself, it will be subject to privacy and data protection and according to the Bank of England, neither the government nor the Bank would have access to any personal data. Holders would also experience the same level of privacy as a bank account. The digital pound would be accessible through digital wallets offered to consumers by the private sector via smartphones or smart cards, and would be for online and in-store payments, rather than savings, with no interest paid on deposits. If the currency were indeed issued, there would be initial restrictions on how much a person or companies could hold.
According to the Bank of England, the needs of vulnerable people are taken into account in the design process of the digital pound, to ensure that it is simple and straightforward to use and is understood and trusted by the public as a form of money.
Unlike cryptoassets and stablecoins, the digital pound would be issued by the bank and not the private sector. This would mean it would have intrinsic value and would not be volatile, unlike (unbacked) cryptoassets, as there would be a central authority to back it.
But why do we even need a digital pound when payments are already largely digital to begin with?
The most obvious and direct benefit of a CBDC, in the form of a ‘core ledger’, a resilient and secure technology platform, is a faster, cheaper and more efficient payment system, both nationally and internationally. It would lower the cost of making, distributing and protecting physical money. These profits can increase productivity in an economy, which is a fundamental aspect of economic development.
But will such an implementation only be positive? What exactly are the disadvantages of such a coin?
The critical point is that CBDCs could become a mechanism for all kinds of levels of central (government) control, which might be hard to imagine for someone who grew up in the free world. The problem with a cashless digital currency is that you can’t take your digital tokens and keep them under the mattress, and eventually there may not be an option for physical cash in a country at all. This would give central banks more flexibility to implement negative interest rates, encouraging people to use or lose the money, increasing consumer spending.
The Chinese Communist Party is already developing a central bank digital currency that will allow the government to monitor and control the behavior of its citizens as part of its larger social credit system.
Under China’s burgeoning social credit system, citizens are given a credit score based on their online and offline behavior. It rewards “good” behavior, such as spending time with the disabled or the elderly, and punishes “bad” behavior, such as protesting the government or spending too much time playing video games.
But when the “trust” is broken, restrictions are imposed, meaning citizens who commit even minor non-compliance can be blacklisted from traveling, visiting restaurants, watching movies, getting insurance, or even buying a home. rent or buy. . No, this is none episode of the Netflix series Black mirrorbut apparently this is already happening to more than 30 million citizens, according to Chinese state media.
With the central bank’s new big data-based digital currency and electronic payment system, the CCP could have another tool at its disposal to monitor and control citizens’ behavior.
Alex Mann, partner at Concentricthe pan-European VC, which heads the company’s bitcoin-focused fund, Timechain, shares this critical view on the subject of a UK CBDC, he noted:
“CBDCs are an affront to the proud tradition of individual liberty enshrined in the British Constitution since Magna Carta. The pound is already digital and as such the sole purpose of a CBDC is to increase the control and surveillance of the population. Due to its programmatic nature, a CBDC will inevitably be combined with a ‘social credit score’, CCP style, to ‘encourage’ behaviors that the current political regime deems desirable. When money is limited in how and what it can be spent on, it is no longer money and is more like a coupon.
In stark contrast to a CBDC is the world’s only decentralized, fair and open monetary protocol – Bitcoin. If the UK government is serious about innovating its way out of the debt-ridden mess it currently and inevitably finds itself in, it should embrace innovation again and embrace bitcoin. Bitcoin is an open and digital monetary protocol whose architecture is inherently more performant, flexible and capable than any CBDC can ever be – by definition. Due to its open source and permissionless nature, it is free for the private sector to innovate, just like the internet. In fact, it is instructive to think of Bitcoin as the internet of value, a means of communicating value securely and at the speed of light, just as the internet allows us to communicate information at the speed of light.
Bitcoin is inevitable. It will be and is being taken over by free peoples all over the planet. The nations that adopt it will be at the forefront of prosperity in the 21st century, while those seeking to restrict and curtail their populations through CBDC will fall into insignificance and despair. BTC, not CBDC.”
Bank of England Governor Andrew Bailey said: