The race is on! Central banks have been looking into issuing their own central bank digital currencies (CBDC) and the UK has their eyes set on one of their own.
China has been in the lead among major economies for years as they have already started extensive testing on a pilot last year according to a Citi report called “Future of Money” released earlier this month.
The Eastern Caribbean has also released its own “DCash” digital dollar this month as we see the demand for digital currencies growing among global economies. Other countries are choosing to ban the use of cryptos rather than find ways to incorporate them into existing financial systems.
But now the UK is hot on their heels with ideas for their own CBDC. Of Course, a lot more planning and research is involved when structuring a new digital version of a major economy’s currency. And the UK is doing all the necessary research to ensure a smooth-running operation.
“The Government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK, and will engage widely with stakeholders on the benefits, risks and practicalities of doing so,” in a statement by the Bank of England.
Finance Minister Rishi Sunak made a statement on Monday at a fintech industry conference saying “We’re launching a new task force between the Treasury and the Bank of England to coordinate exploratory work on a potential central bank digital currency,”
Sunak also reached out to his Twitter followers shortly after his announcement with a single-word tweet to his nearly 500,000 followers in the form of a question saying: “Britcoin?”
The Bank of England had also released a statement saying such a currency would be a “new form of digital money issued by the Bank of England and for use by households and businesses” and that this digital currency would exist alongside cash and bank deposits instead of being a replacement.
Bitcoin reached a high of over $64K last week due to the much-anticipated public debut of Coinbase, the largest crypto exchange in the United States. This was a record for the world’s most popular coin, but the value dropped very quickly this week due to news concerning regulations and restrictions around cryptocurrencies.
Central banks are starting to look closely at the uses and benefits of CBDCs. The driving force behind the urgency to create these currencies is fueled by ambitious big tech companies that are forging alternative payment methods to existing bank-based payment systems in the form of tokenized currency, according to a report released by Citi.
Paypal has now incorporated crypto payments into their checkout service and Visa is making use of the Ethereum blockchain to resolve transactions on their payment network and minimize the costs incurred by fiat currency transactions.
The other reason for the race to CBDCs is stablecoin projects that have been making waves in the crypto industry such as the Diem Project (previously known as Libra) backed by Facebook and the controversial Tether token.
The values of these digital currencies are pegged to external commodities or fiat currencies like the USDC coin with the U.S. Dollar. This “stablecoin” approach avoids volatile price swings experienced by most regular cryptocurrencies.
The UK has not yet decided if they will be developing a CBDC of their own, and it will be interesting to see what they come up with if they do. It seems the “race” is now officially on. And we can expect some big news in the near future when it comes to central banks and the development of digital coins within their systems.