Could The UK Have Its Own Digital Currency?
This seems to be one of our favourite topics lately – but with good reason! Few would refute the claim that digital currency is becoming more widely used every day. And now, the possibility of the UK having its own digital currency is starting to be raised!
Back in March, the Governor of the Bank of Japan kicked off the suggestion. The central bank should, he said, immediately start “preparing thoroughly” for a future with its own cryptocurrency.
So, it was that in April, the Bank of England’s took notice. Together with the Treasury, they announced plans to assemble a task force to explore precisely the possibility of a central bank-backed digital currency. The aim is to weigh up the risks and opportunities involved in creating a new kind of digital money. Fear not, though! The current plan seems to imply this would co-exist alongside both cash and bank deposits.
Could – to use Harold Wilson’s famous phrase – ‘the pound in your pocket’ become the pound on your phone? And is there then the potential for one day, it to be the pound only on your phone?
What the future holds for digital currency?
As with all financial matters, there is no crystal ball when it comes to how fast, or what ‘shape’ even, digital currency will take. But, we do something about its merits – and that these will naturally lead to its even greater prominence in the future. So, let’s first take a look at what a digital – or crypto-currency is? Put simply, digital currency is secured by cryptography, making it impossible to counterfeit. It’s built using blockchain technology and spread over a complicated network of computers. You may have heard of Bitcoin, the most well-known of the many cryptocurrencies that now exist.
Bitcoin is becoming increasingly widely accepted with Tesla at one stage accepting it as payment for their cars. However they decide to reverse this decision over climate concerns over the use of Bitcoin. Other companies will undoubtedly be watching Tesla with great interest and curiosity at the moment. So far, cryptocurrencies have not been controlled by central banks. As such, they have remained free of political manipulation and interference.
These are times of great change, though! So, could we be about to see the UK venture down the same path as Sweden, which is on track to become the world’s first cashless society from 2023?
The Pros and Cons of Digital Currency
There are obvious drawbacks and risks. Many people might struggle to adapt – and so any move to implement digital currency would have to be gently phased in. Also, in recent years we have seen the damage that cyberattacks can do! There is of course the environmental factor, with Bitcoin ‘mining’ using huge amounts of power (fossil fuelled power) to be effective. Digital currencies would have to prove themselves ‘bullet-proof; before a nation’s currency could be fully entrusted to the online world.
For central banks (and the government!) however, there are also huge benefits. Financial transactions can become much faster. Cash transactions, which previously may have taken place under the table, could bring in a huge rise in tax revenue. Transactions become traceable, so money laundering should (in theory!) become much harder.
The Bank of England’s task force will invariably take some time before reporting their findings. But, for now, digital currencies have momentum, and so we’ll be watching them unfold with great interest!
Written by Alex Welsh
Alex is a Resolution-accredited, Chartered financial adviser. Having joined the firm in 2012, he has extensive knowledge of all areas of financial planning.