The Central Bank Digital Currency (CBDC) is becoming a go-to solution for an increasing number of governments around the world as financial regulators are watching the fluctuations and influence of the growing crypto market in both traditional fiat flows and business interactions. The United Kingdom has become the latest jurisdiction to announce its exploration of the possibilities involving the release of a state mandated digital asset.
In a statement released on April 19, 2021, The Bank of England and HM Treasury announced that the British regulators and state authorities are creating a joint Central Bank Digital Currency Taskforce. The purpose of the working group will encompass coordination and exploration of potential use cases and applications for a UK CBDC.
Shedding Light on “Britcoin”
The statement hints that the potential UK digital currency would be issued by the Bank of England as a new form of digital money. Possible applications for the CBDC, dubbed the UK “Britcoin” by the crypto community, would include transactions made by both private users and businesses alongside cash and bank deposits, rather than replacing them as the primary means of settlement in the country.
The details provided in the official statement released by the Bank of England also give insights into the main objectives of the recently created Taskforce. The working group will be tasked with coordinating exploration of the objectives, use cases, opportunities and risks of a potential UK CBDC, provide evaluation of the design features of the UK CBDC along with a comprehensive assessment of overall cases involved, as well as monitor international CBDC developments to ensure the UK remains at the forefront of global innovation.
In addition, the Bank of England has also announced the creation of two venues that will assist in the implementation of the Taskforce’s goals.
The first is the CBDC Engagement Forum, which will be acting as a hub for engaging stakeholders and exploring use cases and challenges facing the implementation of the CBDC system, including the needs of users, data privacy and security, private and public sector inclusion, and others.
The second venue is the CBDC Technology Forum, which will be used as a platform for attracting technological input and expertise from professionals and world-class experts in the financial, fintech and other industries.
The announcement of a UK “Britcoin” is certainly an interesting, but also not an unexpected move by the British financial overseers. Considering the dire situation in which the UK economy has been thrust by the Coronavirus pandemic in the immediate aftermath of a chaotic Brexit, the introduction of innovative financial instruments is a logical step for ensuring both investor and user support for the fledgling British Pound. The risks and opportunities of having a UK CBDC are many and should be explored as counterweights that are likely to produce an equalizing effect and negate the repercussions of the global economic collapse.
On the one hand, a UK digital currency would allow the British economy to rush into the forefront in CBDC implementation among European states, thus ensuring the engagement of the growing crypto community in both business and daily transactions within the British financial system. The introduction of a “Britcoin” would also usher a considerable number of investors from both the core and novice decentralized audience, who have been either long-time admirers of the British Pound’s relative exchange rate stability and dominance, or were inspired by the recent entry of crypto companies into the major league of traditional financial listings, such as the recent Coinbase IPO. In addition, the digitization of the British economy with the introduction of a CBDC would open up new frontiers for both enhancing the efficiency of operations and rigid monitoring – an aspect the UK’s regulators are notorious for.
On the other hand, a UK “Britcoin” could introduce relative instability into the established British economy, which has been traditionally known for its conservative approach – one best demonstrated by the country’s disdain for the Euro. The time it would take for a “Britcoin” to be adopted in such a system would be considerable, and it is possible that by the time widespread use becomes common, other countries, such as China, could well dominate the decentralized cross-border payments market with their own assets.
Replacement For The British Pound?
As the announcement of the Bank of England emerged, many market participants have started asking whether the “Britcoin” could replace the Pound. The answer is likely negative, as the penetration of the British Pound in the global and UK economy is considerable, and trading pairs with GBP, USD and other currencies on Forex are predominant.
The most likely aftermath of the introduction of a “Britcoin” would be the increase in value of the British Pound, as it would gain additional application on the decentralized market. Traders will be likely to pick up the “Britcoin” trading pair and take advantage of it on par with its fiat counterpart. On the internal market, the “Britcoin” would take a considerable amount of time to be adopted by average users, considering the predominantly senior demographic of the country.
How Is “Britcoin” Different From Cryptocurrencies Such As Bitcoin?
Though details are still scarce regarding the technical characteristics of the “Britcoin”, it is likely that the asset will also function on the blockchain like most cryptocurrencies. The main differences are likely to be controlled emission by the Bank of England, tethering to the British Pound, and interoperability with most major blockchains and payment gateways.
The UK has been lagging behind the rest of the world in terms of economic innovation. As such, the announcement of the “Britcoin” comes as other banks are looking to set up digital versions of their own currencies. For instance, Turkey announced on April 8th that it will be issuing a digital Lira to help its beleaguered economy.
For more examples of CBDC implementation worldwide, check out our latest report on the implementation of CBDCs.