Cryptocurrency exchange rates have hit a high as the Bank of England reveals plans are afoot to launch Britcoin the UK’s own official digital currency.
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The Bank of England and The Treasury are readying a consultation early in 2022 that lays out the government’s view of offering a national cryptocurrency.
The paper is intended as a roadmap explaining the features, benefits, drawbacks and the work needed to get to launch.
The BoE and Treasury are quick to point out no decisions have been taken over Britcoin, and that research and development mean no virtual currency will come out of the consultation until at least 2025.
The BoE and Treasury consultation will look at the pros and cons of a retail central bank digital currency – snappily named UK CBDC.
Currently, commercial transactions between the Bank and other banks are digital, but electronic consumer spending still involves switching funds between one bank account and another for every transaction.
Britcoin would remove the middlemen and let consumers directly call on funds held in a central bank account.
The aim is to make payments more straightforward, quicker and cheaper for businesses and consumers.
Chancellor Rishi Sunak has stated that Britcoin will not replace the pound but coexist with the national cryptocurrency.
Britain is looking at the possibility of launching a Britcoin cryptocurrency after 2025 but has concerns about the market.
These include how cryptocurrency values would cope with inflation and how to regulate a Britcoin.
Effectively Britcoin is a stable coin – a cryptocurrency pegged to the value of the British pound even though the format is digital and no Britcoin notes or cash would be issued.
Another possibility is Britcoin could be part of a larger cryptocurrency run by the G7 group of wealthy countries.
Economic Secretary to The Treasury John Glen said: “The government is committed to continuing to work closely with international partners on the cross-border implications of a potential CBDC. Through its G7 Presidency, the UK has been leading the global conversation on the opportunities and implications of CBDC.“
The statement from The Treasury and Bank of England marks a willingness by the UK government to at least look at the possibility of launching Britcoin as a national cryptocurrency.
Deputy Governor Sir Jon Cunliffe explains the Bank of England approach is different from that of Bitcoin.
“When you use a card or phone for a digital transaction, you are transferring money from your bank account to someone else’s,” he said. “A digital pound would be a claim on the Bank of England issued by us directly to the public.
“Britcoin would be similar to some of the proposals in the private sector. They may use the same technology, but they aren’t Bitcoin. They aim to have a stable value. They are called stable coins, and some big tech companies and platforms are thinking about developing coins of that sort.”
The problem with a central bank adopting Bitcoin as a national digital currency is the lack of international regulation and a cap on the number of coins in circulation.
These factors are considered weaknesses in Bitcoin when the cryptocurrency is scaled up to an international level that allow speculators to manipulate the value of the cryptocurrency.
On the news, Britain and other countries are looking at adopting CBDCs, the price of Bitcoin and other cryptocurrencies shot up in value.
Crypto Market Boosted By Britcoin Plans
The announcements cheered the market, but the belief is CBDCs will marginalise other cryptocurrencies.
Britcoin and other CBDCs are likely to follow the cryptocurrency technology model of sitting on a blockchain database to manage and secure transaction data. However, regulation and maintenance of the blockchain are likely to come from inside the BoE to avoid scammers and fraudsters.
In the long term, official cryptocurrencies are likely to grow into the space currently occupied by speculators as regulation increases.
The fear from most governments is the use of cryptocurrency for money laundering, terrorism and other illegal activities.
Bitcoin is priced at $65,336 – six per cent down on the value a week ago.
Other popular coins have followed a similar price trajectory over the past week, including Ethereum, Cardano and XRP.
The most popular stable coin is Tether, which like the name suggests, is pegged to the value of the US dollar.
Lots of countries have launched with varying levels of success or are at different stages of developing national cryptocurrencies.
The most prominent active coins are:
- Emcash (Dubai)
- Petro (Venezuela)
- Estcoin (Estonia)
- Crypytoruble (Russia)
- E-Krona (Sweden)
- J-Coin (Japan)
The Bank of England has concerns that Brticoin could lead to more financial instability and that a CBDC could make the economy harder to manage.
A CBDC will change the role of retail banks who will lose a large chunk of their business processing transactions to the Bank of England. Retail banks will also have less to borrow from the central bank as Britcoin swallows more money.
“We want to make sure the UK is at the cutting edge of innovation and technology in financial services, so it’s right that we explore the potential role of CBDCs to understand the wide-ranging opportunities and challenges they could bring,” Sunak said.
“The government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK and will engage widely with stakeholders on the benefits, risks, and practicalities of doing so.”
As a stable coin, Britcoin will be pegged at the value of £1,00 and is unlikely to stray more than a few fractions of a penny.
No one knows how many Britcoin will circulate, but the number is likely to be open-ended, so a shortage of coins in circulation will not push the price up to allow speculators to make vast profits.
Britcoin will certainly not hit the markets before 2025 and is likely to launch later rather than earlier. The impending consultation is more about the technical aspects of how the Bank of England will regulate and manage the cryptocurrency rather than setting a date for circulation to start.
Again, who will run the network is a matter for consultation. Still, unlike Bitcoin and other cryptocurrencies, peer-to-peer computer networks belonging to corporations or individuals are unlikely to run central bank digital coins.
It’s certainly a possibility that Britcoin will come with smart contracts. One example is paying a parent paying children pocket money, with Britcoin releasing the cash when targets are reached.
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