Is this the beginning of Britcoin?

At the end of 2022 the Bank of England posted on the UK Government’s Digital Marketplace seeking a developer for a mobile wallet for a central bank digital currency (CBDC). The Bank of England has not yet confirmed whether it will definitely issue a CBDC, but if it does then it’s likely it’ll be at the latter part of this decade. CBDCs are digital versions of fiat currencies issued and backed by central banks, and are often confused with cryptocurrencies like Bitcoin. However, CBDCs do not offer the same decentralisation, trustlessness, or permissionless access as Bitcoin, and are viewed by some as a way for central banks to maintain control and extend their power over currencies.

We first reported on the original digital currency, Bitcoin in Consett Magazine back in 2013 when the price was a mere £200.00 – at the time of publishing this article the price of one bitcoin is now upwards of £18,000.

CBDCs have the potential to create economic, financial, and human rights risks for society. Economic risks include the potential for inflation, as CBDCs can be created at the press of a button and potentially inflate the money supply without corresponding increases in GDP. Financial risks include exchange rate risk, higher lending costs, and operational risks such as the potential for centralised CBDC systems to suffer outages or cyber attacks, disrupting financial transactions for the entire nation. Human rights risks associated with CBDCs include the potential for them to be used as tools of surveillance and control by governments, as every transaction is recordable and authorities with access to the CBDC ledger could see all transactions. There is also the risk of combining digital identity with CBDC, as it could allow the government to control how individuals spend and receive money through programmable money that is conditional on attributes of their digital identity.

A case for Bitcoin: Power for the people?

David Dobrovitsky of Glitter Finance highlights that central banks and governments view Bitcoin as a threat to the current fiat system. ‘We have a fiat-based currency, supported by nothing, which can be printed to infinity, and therefore is highly susceptible to inflation,’ he notes. ‘Putting an old currency into a digital format will not solve this problem,’ he believes. ‘A CBDC will be created by the same institutions that have created a global crisis of inflation”.

To mitigate the risks associated with CBDCs, it is important for governments to design them in a way that prevents these risks from being possible, rather than just designing controls to mitigate them. The debate over CBDCs and cryptocurrencies will continue as governments and central banks consider the potential benefits and risks of these technologies. While CBDCs may offer some advantages, such as reducing frictions in cross-border payments, they also raise concerns about centralisation, surveillance, and control. In contrast, Bitcoin offers decentralisation, trustlessness, and permissionless access for individuals without the need of central banks or governments being in control of how people access or use their own money. 

Controversial: Limiting how much money people can have in their digital wallet

The Bank of England’s Deputy Governor, Jon Cunliffe, stated on 7th January 2023 that if the UK were to implement a digital currency, each person would be restricted to a mere £20,000 digital pounds ($24,000). However, it’s important to note that this statement was made amidst the government and the Bank of England’s work on the possibility of a digital pound, which they claim is still in progress and hasn’t been finalised.

In a speech, Cunliffe suggested a limit of between 10,000 and 20,000 pounds per individual to “balance the risks and support the usability of the digital pound.” This begs the question, what risks are they trying to manage and at whose expense? Furthermore, Cunliffe’s claim that a limit of 20,000 pounds would allow almost everyone to use the digital pound for daily transactions is dubious at best.

It’s important to critically assess the motives behind governments and central banks exploring CBDCs. Is their ultimate goal to increase and maintain control over how individuals, businesses, and organisations choose to spend their money? It’s up to us to consider these questions and express our opinions on central bank digital currencies.

Have your say on this issue

Tell us your thoughts on CBDCs and Bitcoin, leave a comment below.