Summary 

• Chancellor of the Exchequer Rishi Sunak is planning to revamp the financial future by introducing ‘Britcoin’ digital currency.
• Unlike Bitcoin, Britcoin will be controlled by the central bank of the UK.
• Experts feel Britcoin has the potential to boost the economy during the financial crises.

Digital currencies, which are offered and traded digitally or in electronic form, are a new reality and are poised to impact the future of financial systems. Bitcoins and other digital currencies like Dogecoin, Litecoin, Ethereum, Ripple and others are being explored across the world, and many new ones are in the works. In April, the UK Treasury and Bank of England have created a joint taskforce to contemplate if a digital currency, Central Bank Digital Currency, should be launched in the UK by the central bank.

According to recent reports, Chancellor Rishi Sunak is closely discussing the Central Bank Digital Currency with the suggestions provided by the Taskforce on Innovation, Growth and Regulatory Reform (TIGRR), led by Sir Iain Duncan Smith.  Sunak has reportedly said the CBDC is expected to be an additional currency, and not a replacement, for cash and bank deposits. The Bank of England (BoE) will issue the CBCD, and it will exist parallelly along with cash and bank deposits, further strengthening the UK financial system by offering a new digital alternative to physical money. By the end of 2021, the taskforce is expected to deliver the findings of its report to the Chancellor.

Bitcoin vs Britcoin

After Bitcoin hit its peak price of over £46,000 per coin recently in April 2021, the BoE-Treasury taskforce was set up to consider introducing a digital version of Sterling into the UK economy. Just like Bitcoin, Britcoin is being planned as a digital currency with only point of difference that allegedly it will directly be linked to the pound Sterling and the BoE. This means that the value of Britcoin will not move back and forth due to demand and supply fluctuations, like other cryptocurrencies.

The Britcoin services were first launched in July 2011 by a software firm – Intersango, which was renamed Britcoin Exchange Intersango. Similar to other active digital currencies, traders were allowed to execute Britcoins transactions safely and privately without any bank account. The currency also provided investors with an alternative to the British pound. In 2019, Britcoin was delisted from most exchanges.

At present, the officials in the UK Treasury have been giving mixed reactions to the proposal of Britcoin, as it has both pros and cons directly affecting the UK economy. According to some experts, Britcoin has the potential to boost the economy during the current financial crises through direct transfers into the accounts of the customers, i.e. paying 'helicopter' money into the accounts of the people, rather than depending on the quantitative easing method. Increasing the money supply can provide the necessary thrust to the falling economy, and the supporters of Britcoin assert that banking costs for smaller business will reduce, as well as the transaction time taken for online payments will also minimise.

Also, the CBDC unit will have a payment facility, unlike Bitcoins and others, which can be used as a mode of payment. Just like a currency note, CBDC will have a serial number to avoid imitation or duplication.

Even though it has its pros, the critics argue that Britcoin may enhance the financial instability, instead of diminishing it. Determining the interest rates, and other such regulatory measures, will become very difficult for banks with a parallel digital currency in the financial system.  Additionally, if a greater number of people switch to Britcoin, then the amount of money available with the high street banks will at once reduce. This reduced lending amount will in turn lead to increasing loan and mortgage rates.

Possibility of backfire

Britcoin is expected to tackle the concerns arising from other cryptocurrencies, such as bitcoin. Also, it is expected to dive down the price of Bitcoin. But is it actually the other way round?

According to Nigel Green, CEO of independent financial advisor and asset manager deVere Group, the move to launch the Britcoin to beat the Bitcoin will prove out to be counterproductive, and in turn boost the adoption of Bitcoin by appreciating its price.

Three reasons cited by Green to support his claim that the UK’s new CBDC initiative may backfire. Firstly, the adoption of cryptocurrencies, such as Bitcoin, will get more legitimacy when the central bank will itself validate the use of digital currency. This will lead to lowering the level of skepticism in the minds of people towards the shortage of physical cash. This will further encourage people to buy Bitcoin, and affirm its intrinsic values of being borderless, digital, quicker, global, and more cost-effective than traditional money.

Secondly, while Britcoin will have many regulatory advantages over the Bitcoin, it will be controlled, and its supply will be managed by the BoE. This means that unlike Bitcoin, its supply as well as its value can be adjusted and manipulated by the central bank. With a limited supply, the Bitcoin is not regulated by any individual authority, thus it is not possible to manipulate its value.

Lastly, the traditional banking system has been witnessing a growing mistrust among the younger 'digital-native' generations. Thus, the system of digital cash is preferred by the new tech-savvy generations. As Britcoin will be controlled by some banking professionals secretively, Bitcoin isn’t controlled by anyone, and is based on a peer-to-peer technology, which is fully transparent and open, and all its decisions are community-based.

Future of cryptocurrencies

Apart from UK, other countries are also considering to launch the digital versions of their currencies. According to the World Economic Forum, around 86% of the world’s central banks are trying to explore the central bank digital currency and weighing the pros and cons.

China is hoping to launch its CBDC and become the first major central bank to do so. Within the coming five years, the European Central Bank is also planning to launch a digital version of Euro. The US Federal Reserve isn’t in any rush to launch a digital dollar but is ready to get the ball rolling.