will a digital pound sterling see the light of day in 2024?

Central bank digital currency projects (or CBDC, for Central Bank Digital Currency) flourish all over the world. In this regard, the United Kingdom is no exception. The current Prime Minister, Rishi Sunak, has long wanted to provide his country with such a currency. Observers across the Channel have even nicknamed the project “Britcoin”, in reference to bitcoin, the most famous cryptocurrency.

But unlike this, which is entirely decentralized, the digital pound so desired by the tenant of 10 Downing Street would be under the control of the Bank of England. As a reminder, the latter was responsible for working on the subject, while he was still Boris Johnson's Minister of Finance in 2021. A digital pound sterling would thus play exactly the same role as the current pound sterling, except that it would be purely virtual, destined to be exchanged only via computers without ever taking the form of bank notes.

Elected officials approve the idea… with some reservations

In December, a British parliamentary group, the Treasury Committeepublished a note on the subject, to which the government is now invited to respond by the end of January.

The parliamentarians invite the Bank of England to continue its research and experimentation work for the implementation of a digital pound. To support their claims, they highlight several benefits that this virtual version of the British currency would be likely to bring.

Thus, it would stimulate innovation around fintechs and payment methods, an area in which the United Kingdom, and in particular its capital, has excellence that is worth defending. The digital pound would also allow the British to experiment with the use of a digital currency without the risks of scams and volatility that concern cryptocurrencies. It would also ensure the unity of the British currency, where abandoning the deployment of digital currencies in the private sector could lead to the appearance of several competing currencies, and not necessarily convertible between them. Finally, the report cites the possibility of reducing payment costs, particularly for small merchants.

The report, however, urges British authorities to be cautious. One scenario is particularly singled out: the risk of a massive conversion of bank deposits into digital books by the British. The danger ? Such a movement would force banks to drastically increase their interest rates. The danger of seeing people less familiar with new technologies left behind is also highlighted.

We must ensure that the digital pound does not worsen the financial exclusion of those who rely on cash. The digitalization of money cannot leave these people behind in any way », Notes Harriett Baldwin, elected representative of the Conservative Party who heads the committee.

To do this, the report suggests in particular that the system support offline payments for Internet users who do not have access to the web or have a limited connection.

The Bank of England, a pioneer in CBDCs

The British monetary institution was one of the first central banks to take a close interest in digital currencies. Even before Rishi Sunak entrusted her with the task of preparing a digital pound sterling project, she had already carried out several experiments around the use of Blockchain, and published a first document devoted to CBDCs in 2020. The year 2024 will be now devoted to technical experiments around the use of such a currency, the launch of which can however only come from the British executive. The Bank of England has tempered enthusiasm, indicating that if there is deployment, it will not happen before the second half of the decade.

At the same time, the United Kingdom can also rely on several influential groups which are campaigning for the establishment of a CBDC and have been carrying out important theoretical work in this direction for several years. There Digital Pound Foundation, an organization that is both a lobby and a laboratory of ideas, is among the most influential. For Jannah Patchay, executive director of this organization, the establishment of a CBDC would above all offer the opportunity to overhaul the monetary system, and thus eliminate a certain number of frictions and inefficiencies which have accumulated over the years. over time.

Easily pay money to refugees

If most of the money we use today is already perceived as digital, the idea that it is possible to convert it into cash still remains. Digital technology is here a final technological layer which is added to a system that has improvised over time and technical developments. The idea of ​​the CBDC is on the contrary to start from the technology we have today and build the most efficient system possible. “, she summarizes.

With the key, for example, the possibility of making faster payments with lower fees. But also to transfer money to refugees to a digital wallet, which they could then use wherever they want, without the need to open a bank account. The UN recently carried out a project in this direction.

A lot of noise for nothing ?

In total, more than 130 countries around the world are studying the potential of CBDCs, according to theAtlantic Council, a laboratory of ideas. So far, eleven countries, including Nigeria and Jamaica, have launched one. At the same time, 21 others, including China, Australia and South Africa, have started pilot projects. In the United States, Joe Biden signed an executive order tasking a federal agency to study the advantages and disadvantages of a digital dollar. As for the Fed, it is increasing its tests and pilot programs in this direction.

If the project could see the light of day during a possible second term of Joe Biden, the victory of a Republican candidate could conversely sign his death warrant. Indeed, several party figures, including Texas Senator Ted Cruz and Florida Governor Ron DeSantis, have criticized the idea of ​​a digital dollar. They thus affirmed that the latter could be used to monitor Americans and discourage certain purchases, such as the acquisition of weapons. As for the favorite of the Republican primary, former President Donald Trump, he has, on several occasions, expressed his skepticism towards cryptocurrencies.

In the EU, things are moving faster. The European Central Bank (ECB) has just announced the establishment of an investment plan of 1.3 billion euros for the development of its digital euro. But the project once again arouses opposition, this time from the banking sector, which fears a flight of customer deposits to the benefit of the digital euro, and therefore wants the ECB to limit holdings to 500 euros per person. . The ECB wants to set this limit at 3,000 euros initially.

In the United Kingdom, a much more generous ceiling, of 10,000 to 20,000 pounds, has been mentioned, but the Treasury Committee suggests opting for a lower amount, without commenting on the exact level. Across the Channel as across the Atlantic, 2024 will be an election year. If Labor does not have an official position on the digital pound, it is not certain that the future tenant of 10 Downing Street is as favorable to it as Rishi Sunak.

If CBDCs arouse a lot of fantasies and debate today, it is very likely that their adoption will prove much less sensational than we think, and even go completely unnoticed, according to Jannah Patchay.

All the action will take place behind the scenes: banks will simply use a digital currency to exchange value with each other, and users will not notice anything except that transactions will be a little faster and fees a little lower. »