We’ve all heard of Bitcoin but now ‘Britcoin’ has returned to the table as the Bank of England (BoE) mulls feedback from respondents to a consultation into a Government-backed cryptocurrency.
In April, the BoE, together with the Treasury, set up a taskforce to examine a Central Bank Digital Currency (CBDC) and the possibility of launching a digital pound, which would effectively be a stablecoin.
It has now issued a discussion paper entitled ‘New forms of digital money’ which you can read here.
According to this article, consumer groups, tech companies, trade bodies and academics from the world of finance have said Britcoin should only be introduced “if it delivers clear benefits and there is a real use for it”.
They also stressed that any BoE currency should be designed to run side-by-side with other payment methods, such as cash, portable card readers and eWallets, and not replace them.
According to the report, a key issue to launching a CBDC is whether private companies could provide the service rather than it being centralised by the BoE.
How would a Government stablecoin work?
Britcoin would operate as a cryptocurrency in the same way as other digital assets work, but it would be pegged to the pound and hence a stablecoin.
The Government would effectively have a monopoly on how the digital pound would be used, unlike Bitcoin which is completely decentralised.
Any country can launch its own CBDC backed by the national currency. China, for example, is already trialing the digital yuan.
There are existing cryptocurrencies – or stablecoins – that are backed by real-world money and track this value, such as Tether (USDT) and Paxos Standard (PAX).
What are the benefits of a Bank of England digital currency?
Britcoin benefits could potentially include:
- Providing an alternative to physical cash.
- Potentially cheaper and faster methods of payment.
- Price stability compared to cryptocurrencies which can volatile.
- Engaging those underserved by the current system.
- No requirement for consumers to have a bank account.
What are the disadvantages of CBDCs?
CBDCs are at a very earlier stage, and no-one really knows how they might develop.
Here are few potential disadvantages of CBDCs:
- CBDCs are geographically restricted to the issuing country therefore not freely tradeable globally.
- Centralised and therefore giving the central bank a monopoly over the CBDC (as opposed to decentralised currencies such as Bitcoin).
- Potential for central banks to have greater power to observe how people spend their money.
- Central banks could become competitors to traditional payment providers such as banks which could lead to higher charges.
What are stablecoins and what are they used for?
Some of the largest stablecoins by market capitalization (market cap) are:
- Tether (USDT)
- Paxos Standard (PAX)
- TrueUSD (TUSD)
- USD Coin (USDC)
- Binance USD (BUSD)
Stablecoins are often used on exchanges such as Binance when trading cryptocurrencies.
When trading cryptocurrencies there is often not a direct currency pair with a fiat currency so a stablecoin needs to be bought first before being traded for another crypto.
Because stablecoins are pegged to a fiat currency (most often the US Dollar) they are exactly as their name suggests, stable, and only experience very minor fluctuations in value.
Adam is the founder of The Crypto Adviser which offers experts guides and reviews on all things related to Bitcoin and cryptocurrency.
Adam is Diploma for Financial Advisers (DipFA) Level 4 qualified, a Member of the London Institute of Banking and Finance (MLIBF), and has worked for many years as a journalist and PR consultant, having studied with the National Council for the Training of Journalists (NCTJ).