A path to Britcoin: a UK digital currency isn’t just about the money, it’s a public service
Innovations in central banking rarely attract attention. But, from the Bank Charter Act of 1848, which set in motion the Bank of England’s monopoly on printing money, through to its operational independence in 1997, the central bank has reinvented itself time and again to strengthen public trust in the pound.
Now, a wave of technological innovation is changing finance and another revolution is imminent: the Digital Pound. As the oldest currency still in continuous use, it is an important moment for pound sterling. It is also a unique opportunity to carve out a model for future digital government services to follow, one built of equal parts innovation, integrity and inclusion.
A slew of potential benefits to the so-called Britcoin have been observed by proponents of a Bank of England issued Central Bank Digital Currency (CBDC). It combines the benefits of cryptocurrency and privately-issued “stablecoins” with the institutional legitimacy required for broad uptake and price stability. The design process has reflected five years of research from the central bank, a taskforce between the Bank and the Treasury and a broad consultation process. The foundations to bring in a Digital Pound are therefore well in place.
The simplicity of the term Digital Pound conceals a broad range of different forms it could take, from back-end changes in electronic payment systems, largely invisible to the public, to a suite of user-facing technologies that would revolutionise how people spend their own money.
The Britcoin proposal envisages what is known as a “platform model”, which would see the Bank build a foundational technology with, at the very minimum, the ability to record account balances and transactions. On top of this, private providers would be responsible for building the tech to connect everyday transactions back to the central bank.
A platform model can be a powerful approach to public-sector innovation. But there is an inevitable question: where does the central bank draw the line between core public services and added private services? This question cuts to the core of how citizens and governments interact in a digital age. The Britcoin is as much a digital service as it is a form of money, and could build on recent successes in rapid, user-centric design and uptake of digital services issued by the UK government.
Well-designed, the Britcoin could stimulate private services to innovate, while limiting the opportunity for providers to extract rents. This would require a Bank of England interface that offers users the option to access the currency directly or with a private service depending on their preference. Just as with cash, individuals should have the option to directly hold and transact legal tender without the need for a private intermediary.
It is the digital equivalent of having the choice to carry some cash in a wallet if you want to.
Britcoin will require a balancing act between policy priorities such as access to government services, financial inclusion, user-centric design, privacy, and indeed private market creation These are inherently political trade-offs that go beyond purely economic and technical criteria. The delicate process of stimulating private innovation while providing ambitious, inclusive public services is a fascinating exercise in weighing wide-reaching policy priorities. Given the impact of a Digital Pound, these decisions should be taken in broad engagement with relevant ministers and made explicit and understandable to the layman – the voter.
The Digital Pound is the next and necessary evolution in central banking. It is a unique opportunity for the UK to shape how individuals and businesses experience their money and public services and to set a precedent for the rest of the world. Such a change is governed as much by behaviours as by economics – the perennial challenge of implementing a dollar coin in the US is just one small example.
Given the deliberation to date, the foundations are set for the Bank of England to create an ambitious public digital service. The expertise necessary to establish an innovative, inclusive Digital Pound exists across the UK government; the Bank of England should capitalise on this capability to create a true public-private service that mobilises the best aspects of both sectors. Stability, trust and inclusion must be integral to Britcoin, to establish a new standard for digital currencies around the world.