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What’s the value of a digital pound?

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A consultation from the Bank of England and HM Treasury has outlined that a digital pound will be needed in the future, but what purpose will the “Britcoin” serve over and above what currently exists?

9th Feb 2023
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The consultation, titled The digital pound: a new form of money for households and businesses? starts with a statement that it is “likely” a digital pound will be needed at some stage in the future. 

While the document states it is “too early to decide” whether to introduce the digital pound, it outlines that officials are “convinced preparatory work” on the project is justified.

Describing the central bank digital currency (CBDC) dubbed in some quarters as “Britcoin”, the paper states that the digital pound would be a new form of sterling issued by the Bank of England. It would be a stablecoin pegged to the value of the pound and would act as a digital alternative to cash to be used by households and businesses “for their everyday payments needs”. If introduced, it would exist alongside and be exchangeable with, cash and bank deposits.

“The starting point is that a CBDC is not the same as cryptoassets such as Bitcoin,” Dion Seymour, crypto and digital asset technical director at Andersen in the UK and former crypto lead at HMRC, told AccountingWEB. “A CBDC will, essentially, be issued by a central bank and in many ways the same as the money in your bank account (commercial money).”

Promoting choice and inclusion, or a solution looking for a problem?

The consultation outlines how a potential CBDC would “promote innovation, choice, and efficiency in domestic payments,” but with the UK fintech and payment solutions market booming and the continuing rise of digital payments by consumers, this reasoning seems underdeveloped. 

Ben Lee, a partner at PKF Francis Clark and head of the firm’s blockchain and cryptocurrency team, told AccountingWEB he wasn’t convinced about the advantages the approach provides over traditional payment methods.

“While this technology would certainly provide advantages for anti-money laundering endeavours, there could be unwanted implications through programming such as prohibiting certain freedoms that we currently enjoy with our payment methods,” added Lee.

The paper itself states it does “not propose to develop a digital pound that enables government or central bank-initiated programmable money”. However, the idea that such a project could give central authorities greater visibility over individual holdings or transactions raises far-reaching privacy concerns.

“While we note that the government wants to ensure privacy and will not ‘program’ the money, it remains unclear what, if any, safeguards will be put in place to ensure that and prevent others from doing the same (from which the government indirectly benefits),” commented Seymour.

In January 2022, a House of Lords committee tasked with exploring the project criticised the idea as a “solution looking for a problem” that risks “introducing state surveillance of people’s spending choices.”

One potential advantage of a CBDC, highlighted in a 2021 discussion paper on the subject and revisited in the current consultation, was how it could be used to promote financial inclusion. 

However, despite mulling over how to offer access to payment services for the most vulnerable, who could be left behind by advances in technology like CBDCs, there were very few concrete ideas for how a digital pound could help. Offline payments – payments conducted without a data connection – are referred to in a separate, accompanying technology paper, but its authors admit that such solutions come with “significant challenges”.

Potential uses

One way Britcoin could potentially be utilised would be to facilitate payments from government help schemes during future pandemics or other events that require large-scale assistance. Rather than the chaotic distributions seen during the recent lockdown periods, money could be added by the government to a centralised wallet for verified users to access. However, whether such hypothetical, potentially limited scenarios justify the outlay of building the digital pound is arguable. 

From a tax perspective, the legislative environment would need to shift dramatically before such a currency could be introduced.

“Currently, digital assets similar to a digital pound (stablecoins) are not defined as currency, but assets,” said Lee. “The landscape would certainly need to change in this regard to allow the use of a digital pound without similar tax concerns, which could bring better news for the digital asset industry as a whole. However, it is perhaps more likely that specific allowances will be made for a CBDC to be akin to currency to encourage adoption.”

Overall, Lee takes a more cynical view of the proposed project. “Distributed Ledger Technology has empowered individuals to be in control of their digital assets,” he said. “I struggle to see the advantage of using a digital pound based on this technology that can only be held in wallets by regulated entities.”

Next week AccountingWEB will publish an article from Dion Seymour myth-busting the misunderstandings around CBDCs. To read it, check the AccountingWEB website or sign up for our tech emails using the box below:

Replies (28)

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By RFL H
09th Feb 2023 06:30

A massive waste of taxpayers' money - stop this nonsense now Bailey. There is no problem to solve.

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Replying to RFL H:
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By Hugo Fair
09th Feb 2023 17:10

Quite.
It's not a "solution looking for a problem" ... it's not a solution to *anything* (let alone the post-hoc espoused 'problem' claimed by its proposers).

We already have digital money (although it's nice to have cheques and cash as back-up options) and it couldn't be more closely 'tied' to Sterling (given that is what it is)!

So all that (might be) changed would be that the Govt - or some unelected body or even private sector organisation if we're really unlucky - (a) would be able to track every transaction, and (b) could centrally control what you can/cannot do with your wallet & its contents.

Oh, did someone mention 'benefits'? There's no attempt even to pretend that any would accrue to us - so, lesson learned from MTD ITSA, don't bother making up false benefits ... just get on with it until it crashes & burns.

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Replying to Hugo Fair:
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By maximkvilton
19th Jul 2023 07:16

It appears that you have expressed skepticism and concerns about the implementation of a digital currency, specifically in relation to the potential tracking of transactions and centralized control. While I can understand your perspective, it's important to note that the development and adoption of digital currencies are complex topics with various considerations.

Advocates of digital currencies argue that they can offer benefits such as increased efficiency in transactions, reduced costs, and improved accessibility. However, it's crucial to carefully assess the specific implementation and safeguards in place to address privacy and control concerns.

Regarding tracking transactions, it is true that digital currencies can provide a transparent transaction history due to their inherent blockchain technology. While this can enhance accountability and traceability, there are discussions around balancing the benefits of transparency with the need for privacy and data protection.

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Should Be Working ... not playing with the car
By should_be_working
09th Feb 2023 09:25

"... prohibiting certain freedoms that we currently enjoy with our payment methods..."

This is a feature not a bug.

Kill the idea now there are more pressing issues for the inept BoE to deal with (LDIs?) before any more money is wasted on this Orwellian cobblers.

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By Duggimon
09th Feb 2023 09:35

The only way this differs from how money currently works is the creation of an audit trail the government or anyone else can use to track anything and everything the currency is used for.

It is specifically to allow the gathering of data to monitor what the population does with their money and where their money comes from.

It doesn't make anything better or easier for the population, indeed the opposite is far more likely.

Thanks (4)
Replying to Duggimon:
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By moneymanager
09th Feb 2023 14:50

It ISN'T just about monitoring but the total ability to control, at a granular level how, when, where, and for how long the bank issued "tokens" may be used, Augustin Carstens CEO of the BIS is on record as saying so. To get out of this mess we need to do two basic things, disband the BIS that was only established to handle the extortion payments, sorry, reparations, unilatterally imposed on Germany by the Versailles Treaty and secondly bring the "Bank of England" back under government, i.e. elected, control.

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Replying to moneymanager:
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By RobbieT
09th Feb 2023 16:07

This. The downfalls of such a project are limited only by our imagination. How soon before any of these become a regular feature?: Negative interest rates ("we use all interest recouped to fund green projects and net zero"), expiry dates ("spend by month-end to save the country!"), localisation ("your CDBC tokens are only redeemable within your 15-minute city zone - stimulate your local economy!") and linked to your social credit score ("sorry sir, your card payment at the butchers has been declined as your holiday flights last year have been reclassified as a 10X carbon sin and so your credit score is now in the red. May we direct you to the bug-foods counter?")

All of these have been proposed.

Thanks (1)
Replying to RobbieT:
Should Be Working ... not playing with the car
By should_be_working
09th Feb 2023 16:33

Absolutely. The social credit system is one that normal people look upon with horror, but others are taking inspiration from.

Mis-gendered someone last month? Sent a mildly critical tweet last week about the current media-hyped political 'thing'? There goes your Netflix subscription!

Thanks (1)
Replying to should_be_working:
RLI
By lionofludesch
09th Feb 2023 16:48

should_be_working wrote:

Absolutely. The social credit system is one that normal people look upon with horror, but others are taking inspiration from.

You're saying that these people are not normal?

Whatever that means ....

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By TB93
09th Feb 2023 09:36

Absolutely no chance.
This offers no benefit in the real world, only cons, to fund the cons.

Thanks (6)
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By Justin Bryant
09th Feb 2023 09:40

As far as I can tell, the only diffidence between GBP£ (held as bank deposits) and Britcoin is that the former is within the banking system, whereas the latter (like cash in hand) is not. If that's right, what on earth is the point of having that?

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Replying to Justin Bryant:
By Duggimon
09th Feb 2023 10:14

Assuming it works like Bitcoin, Britcoin is held as a blockchain. The blockchain is a readable list of every transaction ever carried out in that currency. The point is that the government would quite like to read the list of every transaction ever carried out.

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Replying to Duggimon:
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By Justin Bryant
09th Feb 2023 14:49

That's exactly my point, in that it benefits no-one except HMG. It's basically a clever, sneaky way for HMG to get round untraceable cash transactions. No wonder they're so keen on the idea!

Thanks (1)
Replying to Justin Bryant:
RLI
By lionofludesch
09th Feb 2023 15:01

I'm not against the prevention of crime, including tax evasion, but I don't have confidence in HMG's ability to make this work.

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Replying to Justin Bryant:
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By Justin Bryant
15th Feb 2023 13:11

"Other big questions remain to be answered, the bank concedes. One is the extent of anonymity: the need for central ledgers and identity verification when opening an account would mean the digital pound would never be as anonymous as cash."

https://www.lawgazette.co.uk/commentary-and-opinion/britcoin-is-not-as-b...

Seems I was right there.

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Donald MacKenzie
By Donald MacKenzie
09th Feb 2023 09:46

I see no reaon to create yet another cryptocurrency.
There is nothing legal that can be done with a cryptocurency that you cannot do with real money.

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Replying to Donald MacKenzie:
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By JustAnotherUser
09th Feb 2023 12:31

very naïve view but ok.

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Replying to JustAnotherUser:
Donald MacKenzie
By Donald MacKenzie
09th Feb 2023 16:18

Your response is just abuse, with zero explantion of what cannot already be done by existing currency that could be done by a cryptocurrency.
What great advantages are there?
At what cost in instability?

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Replying to Donald MacKenzie:
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By JustAnotherUser
10th Feb 2023 08:04

not really buddy, you made a blanket statement without any merit. Had you asked a question, maybe it would start a conversation, but your comments were conclusive.

I'm not here to educate you, there's plenty of material out there to do that, your statement indicates you have done your research and came to the conclusion that ...
"There is nothing legal that can be done with a cryptocurency that you cannot do with real money."...

this is naive: (of a person or action) showing a lack of experience, wisdom, or judgement.

Here's two lessons to start your day.

Bitcoin is not = to all crypto and all crypto is not = to each other and none of them are = to CDBC's or stable coins. But they all work on the blockchain. To badge this industry as one 'cryptocurrencies' is disingenuous .

Start here with the now 14 year old whitepaper https://bitcoin.modeapp.com/bitcoin-white-paper.pdf

Then use google.

Then ask questions, with an open mind that maybe you don't understand these things and want to learn.

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By NotAnAccountant2
09th Feb 2023 09:47

Like everything else UK governments try to do, this could be a good thing but it will fail by any reasonable metric: it will cost too much, it will not deliver what is promised, it will not work properly, and it will make life difficult.

Assuming we're talking about digital cash here - something that has similar characteristics to coins and notes - a "digital pound" would have some significant benefits - one is that counterfeit pounds could become impossible although that would mean it's not quite like cash if you want to avoid double spending. Or, for a significant usability benefit, while counterfeit pounds will be impossible, double spending will be possible during short time windows but quickly detectable after the event. If the design allows it, it is the recipient who can control the risk of the payer double spending and the recipient who can confirm that they are the owner of the pound.

But governments are not interested in "digital cash" because of the benefits it brings over physical coins and notes, but instead because it can allow tracking of money. They will claim they are doing it because of the (real) benefits over physical cash but they will implement it so that they can track money continuously. As a result it will fail miserably, not because you cannot implement a non-anonymous digital cash, but because unless you're honest up-front about what you want and need, the design will fail to take these requirements properly into account from the start and so will end up a series of kludges.

Digital cash has been written about for donkey's years, all of the tradeoffs are well known. Admit that there are tradeoffs and be honest about what you want and it can work. Lie about it because the popular vote won't accept what government wants and it won't work because digital cash is up against hard unyielding mathematical theorems that will not, and cannot, bend to a whim.

Thanks (4)
By SteveHa
09th Feb 2023 10:30

Most of my spending is with "digital" money (i.e. I rarely see an actual coin or note - just transactions on my phone).

I don't need no stinkin' Britcoin.

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By Ruddles
09th Feb 2023 12:06

Sounds like a good idea to me. At the moment, there is no limit to the amount of 'cash' I can hand over the bar using my phone on a Saturday night out with chums. The Sunday morning hangover is not improved by looking at my bank balance. Now, if I were able to fill my digital wallet with virtual cash - once empty, time to head home.

;¬)

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Replying to Ruddles:
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By kjevans
09th Feb 2023 16:26

There would be if you used actual physical money and left your phone at home

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By JustAnotherUser
09th Feb 2023 12:33

will only work if they manage to regulate all outflow of money to crypto exchanges and outlaw other stable-coins, which they will never do and even then it wont work as a currency.

This is nothing more than someone grabbing column inches and trying to stay relevant.

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RLI
By lionofludesch
09th Feb 2023 13:01

Another gormless Government halfwit talking blocks and wasting taxpayers'money by drawing a salary.

Fortunately, won't happen in my lifetime.

Thanks (1)
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By moneymanager
09th Feb 2023 13:57

What's the value of a digital Pound, well, [***] all. When I was a boy I bought a weekly Mars Bar with my pocket money for 6d, a price increase, or really a depreciation of the currency, by a factor of fourty plus.

As to "digital" money, there won't be any, as Sunak's much favoured CBDCs or even the interim of a national central bank "badged" version will all be programmable they will cease to be your money to use as you choose but tokens, rather like employer issued "scrip" for the company shop, that may or may not be used according to your social credit standing and possibly with even an expiry date.

Here's Harold Wilson spinning a yarn https://youtu.be/mIQnpoGBS1I and the BIS has claimed that "stability" has been one of its primary purposes and how effective has that been?

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RLI
By lionofludesch
09th Feb 2023 16:44

A couple of weeks ago, I called at Greggs in Airedale to buy a steak bake as a gift for a friend and they were only accepting notes and coins, owing to their card systems being down, as were those of the entire Cas Vegas area.

It's then that you realise that bits of paper and metal are actually quite useful as a back up.

Not the first time there's been down time either. The entire Ackworth area was on cash only for a week a few years ago after a cable theft. And you could only get cash outside the area because the cash machines didn't work, as they rely on the telephones.

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By newman
12th Feb 2023 11:03

The CBDC£ value (cost) will be 99p to buy and 1.11p to sell (loans, mortgages), with cashback to over-68s etc., and the delighted nation will be on board in no time.

Have not done the counting but maybe tens of thousands of individuals and businesses (but only a handful of British nationals or residents) have already had their funds frozen and travelling banned, but we are totally lacking partial restrictions.

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