Two years ago, the House of Lords looked into whether the Bank of England should issue digital pounds to be held in electronic wallets. Peers were unconvinced, asking if this wasn’t “a solution in search of a problem”. Last December, MPs on the Treasury select committee said the same thing. The government’s response, however, was to tell the public to prepare for a “Britcoin” to be in use by the end of the decade.
Physical money has been around for thousands of years for good reason. Cash is convenient, reliable and anonymous. It seems unlikely that these advantages could be replicated online. State-backed e-cash might look inevitable to officials who say money is already digital, pointing to cryptocurrencies and smartphone payments. But central bank digital currencies (CBDCs) are different. A Britcoin would shift the management burden from commercial banks to Threadneedle Street.
Paul Tucker, a former deputy Bank governor, argued in his book Global Discord that the west is responding to China’s digital renminbi, which potentially gives the state social control through direct access to banking transactions. Yet the UK government can already spy on commercial bank accounts. It doesn’t do so without good reason. Brett Scott, a former broker and the author of Cloudmoney, accepts that there is a geopolitical rivalry. The difference, he says, is that private corporations can push their agendas harder in the west than in Beijing.
During the pandemic, finance and technology firms accelerated moves towards a cashless society, which saw hitherto unimaginable levels of surveillance and data extraction. A world without notes and coins would hurt those least able to afford it. Poor and elderly people often prefer to budget with cash. A million UK adults don’t have a bank account. The Royal Society of Arts calculated that going cash-free risked 10 million Britons losing control of their finances. The prospect of a cashless society also unnerved central banks. They worried about being dominated by commercial banks. Their answer: central banks should have their own digital currencies.
However, if central banks pushed CBDCs, they risked destabilising the financial institutions they oversaw. Central banks can’t go bankrupt. People would vote with their feet if they could effectively open accounts at the Bank of England. According to a 2019 survey of 23 central banks, 82% of respondents worried that digital currencies could cause runs on banks. To address concerns, caps on CBDC holdings have been suggested. But limits may put off many from using digital pounds.
Mr Scott rightly compares the digitalisation of money to Uberisation – a process where convenience is traded for societal threats that older behaviours kept in check. That’s why we need a debate rather than passively accepting state-backed digital money. Facebook’s global cryptocurrency, Diem, was killed off by money-laundering concerns. But pervasive monitoring of spending could change society’s psychology for the worse. Rightwing conspiracy theories have been launched by excitable talk about the potential to place conditions on who can use digital money, for what, and with whom. Technically feasible? Eventually. Politically realisable? Gradually. Desirable? Well, that depends on your perspective. Maybe in developing countries, a digital central bank currency could be used – as was attempted briefly in Ecuador – to stymie an overly powerful, and US-aligned, domestic finance sector. But for the UK, it is an idea whose time has yet to come.