What Is CBDC?

Britcoin is destined to be a Central Bank Digital Currency, or CBDC. This means, in the simplest terms, that it is a digital currency – which somewhat vaguely in the announcement says may or may not be held on a blockchain – and is expected to be issued in the second half of the decade. Again, the Treasury states that this digital currency may be needed in the future, especially in the event of actual cash disappearing.
Sir John Cunliffe – deputy governor of the Bank of England – made the announcement of the consultation period and sought to distance Britcoin as far from crypto as he possibly could.
“This is not like Bitcoin and other cryptocurrencies. They are highly speculative, volatile and backed by nothing. They have no intrinsic value. They are more like a bet than trusted money.”
Britcoin, on the other hand, will “be a safe, trusted form of money for everyday transactions, akin to a Bank of England note”. That’s us told then. But, to borrow a phrase from Mandy Rice Davies, he would say that, wouldn’t he?

A Stablecoin?

If we deconstruct what Britcoin could be, it is clearly intended to be a stablecoin – after all, it will be backed by the Bank of England – and it looks as if the intention is that a ledger will be held by the Bank, recording all transactions and account values.
Britcoin will be one-for-one with GBP, and the assumption is it will be bought by people for their own uses. The proposed limit on holdings will be between £10-£20,000, with the rationale to this being that 75% of people can be paid using the lower level, and nearly all at the higher level.
However, if people get paid every month and don’t spend all their Britcoin, then they will very rapidly find they can’t continue with it, unless limits are changed. It will, of course, pay no interest, and there will be measures in place to stop a run on the banks as people try to change their cash into the new tokenised pound.
Personally, I cannot see a lot of uses if the limit is held at £20,000. The best usage would be businesses paying for goods and services on a global scale, which would be impossible with a £20,000 cap. But, the limits make sense in other ways.

Helicopter Money

The Bank wants Britcoin to be a trusted alternative to the ‘Wild West’ nature of crypto and stablecoins and, so, has built caution into the design of the digital currency. If Britcoin is to be interchangeable with the fiat pound, these limits prevent the creation of too many tokens too quickly and any individual from hoarding them, which would put pressure on the one-for-one valuation and/or fuel inflation.
The discussion on whether it would be a centralised platform rather than distributed ledger is also part of those cautious design choices. A core centralised platform is how the Bank has always operated payment systems, such as the Clearing House Automated Payment System (CHAPs), retaining its ability to intervene. The potential benefits of a distributed ledger are also not that great compared to what it is proposing.
The really interesting opportunity is the potential for alternative monetary policy / economic stimulation in the future. Britcoin makes ‘helicopter money’ possible, where you deposit money directly into people’s accounts.

Consumer Benefit

Unlike many of the economic stimulus measures taken today – such as interest rate or bank reserve changes – this would come without the risk of lack of onward transmission to consumers. Similarly, it would remove the issue of asset price inflation, which is typically a by-product of quantitative easing. Instead, we would be looking at proper consumer stimulus, direct to their digital wallets – a very cool idea.
The other point is somewhat more esoteric. As someone who is generally on the side of the underdog and pro-competition, I like the idea that the crypto cowboys will have to compete with a stable, less volatile option. This caters for a range of risk appetites, allowing those so inclined to take higher risks and the upside that might come with that.

WIR Ready

Several other governments are looking at issuing their own CBDCs, China for example already has one. In my view, it is best to regard them as an adjunct or addition to existing national currencies, such as WIR in Switzerland, which I’m always accused of mentioning. Sardex in Sardinia, now extending into the rest of Italy, is a wonderful example of how what is effectively a barter currency can help poorer regions. I’d love to see something similar in the UK.
Central banks and regulators were extremely worried by the potential for Meta to create its own world-wide currency, and, although they managed to kill it, the possibility of currencies existing outside of the present financial system haunts them. Such currencies would fragment the present system and loosen regulators’ hold on countries’ finances.

For my part, I welcome the coming of Britcoin, as I can see it as an imprimatur of cryptocurrencies for the future. The only fly in the ointment for the Treasury is that there is already a company called Britcoin Ltd and an associated domain name. So, perhaps it will have to opt for ‘Britcoin Cash’?

A version of this article appeared in Scotcoin Project CIC’s CEO Temple Melville’s Crypto Sermon column for City AM

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