British digital currency being considered by government taskforce
Image credit: REUTERS/Toby Melville
The UK government is to set up a new taskforce to explore the possibility of a national digital currency, among a series of possible reforms to boost the fintech sector.
The taskforce will be composed of representatives of the Bank of England and the Treasury. It will examine the possibility of establishing a central bank digital currency - an 'e-pound' - and the risks and benefits associated with such a currency.
Last year, the Bank of England stated that it was considering the introduction of an electronic form of central bank money that could be used by households and businesses to make payments, alongside cash and money held in bank accounts.
A digital currency could be designed with certain purposes in mind, such as to render it easier to make small payments (such as a few pennies to access paywalled content online), or to allow taxes to be deducted automatically at the point of sale.
This could also reduce friction for international payments and offer an alternative to cash and card payments, while taking advantage of a decline in cash payments accelerated by the coronavirus pandemic; fewer than 10 per cent of payments in the UK are forecast to made with cash by 2028. Authorities have stated that they remain committed to supply cash to those who prefer to use it.
“Our vision is for a more open, greener and more technologically advanced financial services sector,” said chancellor Rishi Sunak. “The UK is already known for being at the forefront of innovation, but we need to go further. The steps I’ve outlined today, to boost growing fintechs, push the boundaries of digital finance and make our financial markets more efficient will propel us forward. If we can capture the extraordinary potential of technology, we’ll cement the UK’s position as the world’s pre-eminent financial centre.”
As part of Sunak’s plans to support the UK’s fintech sector, the Financial Conduct Authority is establishing a “scale box” to support companies trying to scale-up new technologies. Sunak has also committed to consulting on proposals from a review into how companies list their shares on a public market in the UK.
Digital currencies are being explored and introduced in a handful of other countries, riding on the explosive popularity of cryptocurrencies such as bitcoin and ethereum (which are distinct from digital currencies managed by central banks). The Central Bank of the Bahamas has introduced the digital 'Sand Dollar', which carries the same value and consumer protections as a conventional Bahamian dollar. The cost and inconvenience associated with cash movement between the 700 small islands were key motivations for introducing the digital currency.
China is trialling a digital currency in several cities and the head of Sweden’s central bank recently suggested that its country could have a digital currency by 2026. The head of the European Central Bank has also indicated interest in creating a digital euro.
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