The publication of a consultation document outlining the proposed digital pound, which the public has dubbed “Britcoin,” has brought the United Kingdom one step closer to the introduction of a central bank digital currency (CBDC).
The Bank of England (BoE) and the UK Treasury jointly issued the 116-page consultation document on February 7. A technology working paper that explores the technical and financial design factors was also published. The report claimed that CBDCs like the digital pound may co-exist in what they anticipate would be a “mixed payments economy,” notwithstanding the emergence of privately-issued stablecoins in recent years.
Although the BoE and the Treasury want to introduce a digital pound by 2025 “at the earliest,” there is currently no guarantee that it will happen at all. Despite the fact that no decision to adopt a digital pound can be made at this time, the document noted that The Bank and HM Treasury think a digital pound is likely to be required in the UK.
The purpose of introducing the digital pound, according to the document, is to encourage innovation, variety, and efficiency in domestic payments and to make sure that the currency issued by the U.K. central bank remains “an anchor for trust and safety” in the nation’s monetary system.
What we need to know about the e-GBP
For the e-GBP to be widely used in the retail sector, a number of “public-private partnerships” would need to be established. Users will have access to e-GBP via accessing an API maintained by the private sector, which links to the core ledger. Smart contracts and atomic swaps, which let assets transfer across networks, are two further programmability capabilities that will be introduced.
The report acknowledges that the private sector would contribute to the construction of such infrastructure, but it also suggests setting individual restrictions of between 10,000 and 20,000 British pounds ($12,000 to $24,000) to effectively preclude its usage as a savings account.
It was also stated that many members of the crypto community had privacy concerns. The report noted, without going into more detail, that an e-GBP would be held to “rigorous norms” of data security and privacy. Because transactions would be recorded anonymously on the main ledger, users will “enjoy at least some amount of privacy,” according to the statement’s additional explanation.
How the e-GBP could affect banks and the monetary policy
The report did note, however, that “bank disintermediation,” or the reduction in deposits placed into commercial banks, is one way that an e-GBP may affect the business models of commercialized banks.
The usual ways of creating money would not be significantly altered by the digital pound, although this might have an impact on the stability of the currency. The transmission of monetary policy to the actual economy may be impacted by bank disintermediation, according to the consultation paper. The central bank thinks the digital pound may increase financial inclusion among the British people.
