The UK will explore a Bank of England-backed cryptocurrency called ‘Britcoin’

Bank of England
A general view shows The Bank of England in the City of London financial district, amid the outbreak of the coronavirus disease (COVID-19), in London, Britain, November 5, 2020.

  • British finance minister Rishi Sunak revealed the UK is exploring the feasibility of “britcoin,” Reuters reported.
  • It is a cryptocurrency backed by the Bank of England aimed to address the issues bitcoin has.
  • A new task force was launched on Monday to look into a central bank digital currency or CBDC.
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British finance minister Rishi Sunak on Monday revealed that he is exploring the feasibility of a cryptocurrency backed by the Bank of England dubbed “britcoin,” aimed addressing some of the issues posed by other cryptocurrencies.

“We’re launching a new task force between the Treasury and the Bank of England to coordinate exploratory work on a potential central bank digital currency (CBDC),” Sunak said during the UK FinTech Week conference, as reported by Reuters.

Shortly after the announcement, Sunak published to his nearly 500,000 followers a one-word tweet saying: “Britcoin?”

The new task force will explore opportunities and risks of a CBDC, as well as monitor international CBDC developments to “ensure the UK remains at the forefront of global innovation.”

“The Government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK and will engage widely with stakeholders on the benefits, risks, and practicalities of doing so,” the BoE said in a statement Monday.

But, if plans go through, the CBDC will exist alongside cash and bank deposits instead of replacing them, the bank said.

Other central banks across the world are examining the possibility of a digital currency, with China leading the pack. The Asian superpower is already at the point of extensive pilot testing, according to a new Citi report this month entitled Future of Money.

China began developing its digital currency electronic payment CBDC in 2014 and tested a pilot in 2020. Citi said it expects China’s “sprint to a cashless society” within five years.

BoE Governor Andrew Bailey in the past has said that he sees little intrinsic value in bitcoin doubts its utility as a form of payment. Bailey shares this sentiment with US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde.

Still, bitcoin has skyrocketed 600% in the last 12 months. The market value of cryptocurrencies as a whole hit $2 trillion in April, doubling in value in a matter of months.

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Central bank digital currencies do not threaten the existence of cryptocurrencies, Morgan Stanley says

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Morgan Stanley said cryptocurrencies and central bank digital currencies would coexist.

  • Morgan Stanley said cryptocurrencies will still exist even if central banks issue their own digital currencies.
  • The bank said the uses and appeals of central bank digital currencies and cryptocurrencies are different.
  • It said cryptocurrencies can be seen as a store of value, similar to gold, and a speculative asset.
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Cryptocurrencies will continue to exist even if central banks start issuing their own digital currencies, because they serve different purposes and have different appeals, analysts at Morgan Stanley have said.

They said in a report on Monday government-backed digital currencies probably pose the biggest risk to stablecoins – that is, cryptocurrencies that reflect underlying assets, such as the one planned by Facebook.

But the analysts, including Morgan Stanley’s chief economist Chetan Ahya, said “Cryptocurrencies will still exist, as they continue to serve other use cases.

“For instance, some cryptocurrencies can function as a store of value… as some segments of the public do not place their full faith in fiat currencies.”

Some analysts have suggested CBDCs could cut the appeal of technologies such as bitcoin, with a Bank of America report saying they could be like “kryptonite” to crypto.

But Morgan Stanley’s report said the reasons for investing in cryptocurrencies appeared to have evolved, with buyers increasingly viewing digital coins like bitcoin as new institutional asset classes, rather than replacement payment systems.

“Investors’ interest in cryptocurrencies has risen alongside the unprecedented monetary and fiscal policy response to the pandemic,” the report said.

Central bankers are increasingly interested in launching digital currencies. Research and development efforts are underway at 86% of the world’s central banks, according to the Bank of International Settlements.

Morgan Stanley said central banks have been spurred to action by the rapid growth of digital payments and threats to their control over money by private companies.

A central bank digital currency, known as a CBDC, would let people access central bank money digitally to hold and make payments.

The public can currently only hold central-bank issued money in the form of physical coins and notes, and largely uses electronic representations of cash held at banks or on prepaid cards to make payments digitally or online.

Morgan Stanley’s major report into CBDCs showed they would probably be quite different from cryptocurrencies, as they would not use a decentralized security system, or blockchain.

The European Central Bank has made similar arguments to Morgan Stanley, saying CBDCs have little to do with cryptocurrencies, which it sees as speculative assets and not actual currencies.

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Bitcoin won’t replace the dollar because it’s too volatile, Fed’s Powell says

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  • Cryptocurrencies like bitcoin are too volatile to replace the dollar, Fed Chair Jerome Powell said Monday.
  • Bitcoin has surged in price as companies including Tesla and Square invest in the token.
  • The Fed is still exploring use cases for a digital currency issued by the central bank, Powell said.
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Federal Reserve Chair Jerome Powell said Monday that, while the central bank is still exploring the potential for a central bank digital currency, cryptocurrencies like bitcoin can’t serve as an effective replacement to the US dollar.

Bitcoin has enjoyed new fame over the past year as large companies’ adoption of cryptocurrencies has sent prices surging. Companies including Tesla, MicroStrategy, and Square have all invested in the token. Meanwhile, players in the financial sector are warming to cryptocurrencies’ use as an alternative asset.

The positive developments helped bitcoin surge as high as $61,742 earlier this month as more investors looked to profit on the token’s growing popularity.

Powell has his doubts about cryptocurrencies and their supposed use cases. The tokens might be a substitute for gold, but their wild price swings make them unfit to replace the dollar, the central bank chief said during a teleconference hosted by the Bank of International Settlements.

“Crypto assets are highly volatile – see bitcoin – and therefore not really useful as a store of value,” Powell said, according to MarketWatch. “They’re not backed by anything. They’re more of an asset for speculation.”

Bitcoin fell slightly through the day following Powell’s remarks. The cryptocurrency traded just above $57,000 as of 2:30 p.m. ET, up roughly 98% year-to-date.

While cryptocurrencies aren’t likely to gain the Fed’s favor, the central bank has considered creating a digital currency of its own. The Fed partnered with MIT researchers in August to build and test a central bank digital currency. Officials sought to gain a better understanding of digital currencies and their potential implementation through the tests, Fed Governor Lael Brainard said at the time. Still, the token included in the study was merely “hypothetical,” she added.

Powell reiterated that, though the bank is still studying the potential for a digital dollar, serious vetting is necessary before such a currency is implemented.

“To move forward on this, we would need buy-in from Congress, from the administration, from broad elements of the public, and we haven’t really begun the job of that public engagement,” the Fed chair said. “Because we’re the world’s principal reserve currency, we don’t need to rush this project. We don’t [need] to be first to market.”

Somewhere between a central bank digital currency and cryptocurrencies exist stable coins. These tokens counter the volatility seen with cryptocurrencies by tying their value to more stable assets like government-issued currencies.

Stable coins are “an improvement” over cryptocurrencies and “may have a role to play” in digitizing the dollar, but they’re unlikely to form the foundation for a global payment system, Powell said. Any candidate for a global currency controlled by a private company deserves “the highest level of regulatory expectations,” he added.

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