Recently, British authorities have been speaking a lot about the digital Pound. On Tuesday, Jon Cunliffe, Deputy Governor of the Bank of England (BoE) commented on the British central bank digital currency (CBDC).
The central banker said that a new digital version of the Pound might prove to help safeguard customers in the event of a banking system collapse. He presented his views while adding to the case for a project to produce a kind of currency accessible online.
According to the official, we are now in the “era of instantaneous bank runs” in which customers may instantly transfer their funds to a different bank if they are concerned about that one’s financial stability. Although a central bank digital currency (CBDC) may “intensify” a run on a bank by facilitating faster money transfers, it would also provide users with a “safe place” to store value, as he put it.
On Tuesday, Cunliffe explained to the lawmakers on Parliament’s Treasury Committee the financial stability benefits that CBDC possesses. In his word:
Actually, a CBDC has financial stability benefits because it provides another payment system in terms of resilience, but it also means that if we ever have to deal with failed banks again, there is another asset that people can go into.
In early February, the Bank of England and the British Treasury released a formal consultation paper to create the pathway for the rollout of a CBDC that could operate alongside the region’s fiat currency. Jeremy Hunt, the chancellor of the exchequer, and Andrew Bailey, governor of the Bank of England, say that the government could still decide against a CBDC; the consultation paper argues that a digital Pound will be needed at some point in the future.
Some officials and media precisely started referring to the digital Pound as “Britcoin”, which is inspired by cryptocurrencies and the need to create an instrument similar to cash that can be used for online purchases. In contrast to crypto assets, the digital pound would have the support of the government and central bank. If the government gets its approval in the middle of the decade, it might be implemented by 2030.
The resemblance to the term “Bitcoin” brought concerns to Cunliffe, as the public might make unfavorable comparisons. He stated that they do not want to refer to the country’s CBDC as “Britcoin.”
Cunliffe also argued that in 2008 the British government had to bail out banks like Northern Royal and Royal Bank of Scotland because the majority of people’s money which he quoted as “60%” was tied up in commercial bank deposits, the safety of which is dependent on the stability of the institutions holding the money.
However, he said that allowing users to shift their money quicker is now feasible; but a CBDC may pose “risks about damage to the banking system.” The deputy governor believes that instead of limiting customers’ access to a secure asset, the best approach to deal with this would be to ensure that a lender was appropriately vetted via the central bank’s resolution structure.
In his speech to the lawmakers, Cunliffe also noted that the BoE does not currently have the technical expertise to be able to build the product in the manner of a cryptocurrency. Hence, if the bank opts to continue, it would need to form partnerships with businesses from the private sector. It had only been on February 27 that Ben Broadbent, deputy governor for monetary policy at the Bank of England, stated that the institution is paying keen attention to the rollout of a CBDC.