A Bank of England (BoE) digital pound will be a “complete restructure” of the current financial system and can give the government more control on how people use their money, a financial analyst warns.
Some 130 countries are exploring a central bank digital currency (CBDC), according to the Atlantic Council.
The Bank of England (BoE) and the Treasury are currently considering feedback on how to lay the groundwork for a digital pound, nicknamed “Britcoin” by Prime Minister Rishi Sunak when he was chancellor.
A decision is yet to be made on whether or not to launch a digital pound. But if the plan goes ahead, it could be issued in just a few years’ time to complement physical cash.
Arguing against a retail CBDC, writer and financial analyst Susie Violet Ward said to NTD’s “British Thought Leaders” programme that a centrally controlled digital currency could lead to the curtailing of freedom, and that citizens have not been given enough information to enable robust debate.
If Britcoin is launched, it will be issued by the BoE and backed by the Treasury. Private firms, such as Fintech companies or banks, are expected to provide customers with digital wallets—computer or phone apps that are needed to manage transactions of the digital currency.
Unlike decentralised cryptocurrencies such as bitcoin, the digital pound won’t offer anonymity, which provides privacy but on the downside can also be exploited by criminals.
The infrastructure would also be programmable, enabling app providers to offer extra functions such as budgeting tools.
Ms. Ward said it could mean “they could tell you where to spend your money, what to spend it on, and potentially, if it expires.”
The BoE and the government have said that they won’t have access to users’ personal data “except for law enforcement agencies under limited circumstances, prescribed in law, and on the same basis as currently with other digital payments,” and that the bank won’t initiate any programmable functions.
But Ms. Ward is dubious that it would prevent the system from being used to control people’s spending behaviour. Digital wallet providers will be “subject to the law,” she said. So if the government wants to shut down or stop a transaction, they would have the power to sanction government-prohibited exchange.
Referencing the Chinese regime’s social credit system and COVID-19 restrictions across the world, Ms. Ward expressed worries that often “ill-informed” government agenda may lead to “all sorts of” restrictions, such as potential climate policy-related spending bans.
“They could stop you from buying meat. They could stop you from going on holiday. If they think that you’ve flown on too many holidays, they could stop you from flying. There’s all sorts of … it depends on the government agenda at the time. And who knows what they could come up with in the future?” she said of the possible scenarios.
Ms. Ward acknowledged that similar risks are already inherent in the currently system, in which most payments are made digitally. But she believes there will be more “ease of use” with a CBDC system.
Under the current financial system, “if they [the government] wanted to close down your bank account or take away your money, they could do it; it would just be more convoluted. This would make it a lot easier,” she said.
She also believes that cash will be phased out despite the BoE’s statement that it would continue to issue cash “for as long as people want to keep using it.”
Ms. Ward criticised the BoE and the government for making the public consultation documents too hard for “the majority of the public” to understand, and said that media outlets haven’t provided enough coverage to help people understand the issue.
The expiring date of digital money has been the featured in some of the international debate. The World Bank has studied the effects of expiring money, and the concept was also explored by the Chinese regime and in a paper published by the Bank of Canada.
Increased Use of ‘Private Money’
The BoE joined the global trend of CBDC creation as the use of cash—the only type of state-issued money in the UK—declined dramatically over the years.
According to BoE Deputy Governor Jon Cunliffe, around 95 percent of money used in the UK today is through bank deposits, which is private money created by commercial banks. Big tech’s contribution of an under-regulated private digital money market have also added to central banks’ concerns that they may lose control of their monetary systems.
The BoE has argued that a CBDC could help maintain trust in money and protect the UK’s financial system.
However, peers at the House of Lords Economic Affairs Committee have not been convinced that a CBDC is necessary to solve the problem.
“Private entities of a size that can compete with the existing payments systems can and should be regulated,” the peers said in a report published last year.
The report said that while the government and the BoE should keep looking into the issue, the committee was “yet to hear a convincing case for why the UK needs a retail CBDC.”
The committee said that while a CBDC “may provide some advantages,” its introduction would also brings risks including “state surveillance of people’s spending choices, financial instability as people convert bank deposits to CBDC during periods of economic stress, an increase in central bank power without sufficient scrutiny, and the creation of a centralised point of failure that would be a target for hostile nation state or criminal actors.”
Speaking to the committee at a hearing on July 4, financial services minister Andrew Griffith said he believes the UK should “proceed cautiously” with regard to CBDC.