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The Treasury and the Bank of England say that a government-backed digital pound will probably be put into use later this decade.
Both groups want to make sure that people can get the money that is safe and easy to use in the digital age.
Jeremy Hunt, the Chancellor, said that the central bank digital currency (CBDC) could be a “safe and easy” way to pay.
The building won’t happen until at least 2025.
The Treasury and the Bank of England will formally discuss digital currency on Tuesday.
A central bank does not back cryptocurrencies, and their value can change quickly.
But even though it might use the same technology as cryptocurrencies like Bitcoin and Ethereum, the Bank of England’s digital pound would be less volatile. This is because the Treasury says that 10 pounds in digital form will always be worth the same as 10 pounds in cash.
But people who travel know that the pound’s value changes in relation to other currencies.
In 2021, when Prime Minister Rishi Sunak was chancellor, he told the Bank of England to look into ways to back a currency.
In October 2022, Andrew Griffith, Mr. Sunak’s Minister of Financial Services, said that a long delay could hurt the economy.
Right now, there might not be much need for a digital pound. People use their debit cards, phones, and watches similarly. But it is a solution to a problem that has yet to happen.
But this is a look into the not-too-distant future that sounds like money-related science fiction. Its main purpose is to keep track of what you spend and what everyone else spends. People may put more faith in international brands from the private sector than in the government regarding money or technology. Think of a sterling version of Amazon, Facebook, or maybe Alibaba or Tiktok, which the Chinese government owns.
Companies that keep track of what people buy, when, and where they buy it will have a valuable asset. On the other hand, if there are no rules about digital currencies, these companies might have a reason to make “walled gardens,” which would break up the pound system. Moreover, keeping the economy in check would be more complex because a pound might not be worth a pound everywhere.
This is where today’s ideas come in. The government and the Bank of England would need help to find out what people did with a digital pound. But people could store their cash in digital wallets with companies other than banks, and the level of privacy would vary from company to company. Some users might be okay if their wallet provider knows everything they do, like when they get a discount. Some people want as little contact with other people as possible. The Treasury wants people to come up with new ideas.
Other, bigger groups, like the US and the Eurozone, also want their digital dollars and euros to be used internationally. But, again, this is a vague goal. The main goal is to protect the UK’s financial freedom from companies like Big Tech.
Digital pound came at the right time
The EU made the first global rules for regulating the crypto markets that apply to the whole world.
If they get final approval in the next few weeks, they will go into effect in 2024.
Mr. Griffith said that UK rules could be changed to include decentralized finance and that more openness would benefit everyone.
“We want the right system, run the right way, with the right checks and balances,” he told the committee.
He also promised to have “at least” six roundtables with people in the cryptocurrency industry to “showcase us as regulators and decision-makers.”
As part of a larger plan to make the UK a hub for digital payment companies, the Treasury has said that it will regulate some cryptocurrencies.
It said that “stablecoins” would be accepted as a form of payment to help people feel more comfortable using digital currencies.
Stablecoins are made to have a stable value tied to traditional currencies or assets like gold.
People think they are less risky than Bitcoin and other cryptocurrencies.
The Treasury also said it wanted to hold a public meeting later this year to talk about how to regulate a much wider range of digital currencies, but it hasn’t said which ones.
The Treasury has yet to say which stablecoins must follow the rules. People know about Tether and Binance USD, though.
The first limits
They would spend a lot of money to get the currency going if they were allowed to.
At first, a person or business may need more money to hold.
Andrew Bailey, the governor of the Bank of England, said that the digital pound would give people a new way to pay for things, “help businesses, keep trust in money, and better protect financial stability.”
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He stressed how important it was for the consultation to be the “base” for a “fundamental” decision about how we spend money in the future.
Countries worldwide, like the US, China, and the Eurozone, are thinking about similar plans.