RUTH SUNDERLAND: Time to bank on Britcoin?

Britcoin: it’s a catchy name, with popular appeal coined – pun intended – by Rishi Sunak. 

But the idea of a digital version of pounds and pence, now being investigated by a joint taskforce from the Treasury and the Bank of England, is not as straightforward as it may sound. 

To readers of a particular vintage, CBDC sounds like a New York club in the early days of punk. More prosaically, it in fact stands for Central Bank Digital Currency, the nerd’s name for Britcoin. 

Whatever one calls it, the idea is very much in vogue in central banking circles. 

The US Federal Reserve is investigating a dollar-based version. Beijing is experimenting with a digital renminbi. In the Bahamas, the world’s first national CBDC has been launched. Known as the Sand Dollar, people can use it via an app. 

The world’s central bankers, from the Fed’s Jay Powell downwards, are watching. At the core of this interest in CBDCs is the rise of bitcoin and other so-called crypto-currencies, coupled with a drop in the use of physical notes and coins. 

Usage of cash has been in a long-term decline. As recently as 2008, around 60 per cent of payments, by volume, were made with bank notes in the UK. That fell to 28 per cent by 2018. 

This trend has accelerated in the pandemic when the price of bitcoin, the best-known of the cryptocurrencies, has soared, partly in reaction to central bank policies. 

Coinbase, a crypto exchange platform, listed on the US stock market this month, at one point hit a valuation of $100billion. To some, this is evidence crypto has come of age; to others a sign of market madness. 

Cryptocurrencies are not a substitute for conventional currency: they are not a reliable store of value, they are not widely accepted as payment for goods and services or as a unit of account to measure value.

Even so, the rise of crypto is a concern for central banks as it threatens to undermine their status as the issuers of money and their grip on monetary policy. 

CBDCs are their response. Britcoin, unlike its near-namesake, would be legal tender: holding £10 of it would be exactly the same as having a £10 note. 

As the use of cash dwindles, it could ensure the public still has access to a safe source of money, issued by the central bank, and maintain confidence in the currency. It could help speed payments systems and lower transaction costs for payments. 

People could keep a savings account in Britcoin – in effect putting their nest egg with the Bank of England – instead of depositing it at a commercial operator. 

It is not clear yet whether interest might be paid, but at the moment with rates so low it barely makes a difference. 

There are possible unwelcome consequences for the commercial banks. Lucrative fees they earn by acting as ‘middlemen’ could be whittled away if Britcoin were adopted widely. A successful CBDC might well mean smaller balance sheets and lower profits for the High Street banks. 

Cash is far from dead and is likely to coexist with any digital variant for some time to come. But money has evolved dramatically since 1694, when the Old Lady began issuing bank notes which initially were hand-scribed and promised to pay the exact sum written on them. 

If and when it arrives, Britcoin will be controversial – this, after all, is a country where we had an agonised national debate over portraits of women on our tenners.

It will also be one of the most significant developments in the long and fascinating history of the pound in our pocket – or in our digital wallet.