A Digital Pound – Do We Need It?

Anyone with an interest in the financial world should take a look at a consultation paper issued jointly by the Bank of England and HM Treasury on proposals for a “Digital Pound: A new form of money”.

A digital pound would be a new form of digital money for use by households and businesses for their everyday payments needs. As part of the wider landscape of money and payments it would sit alongside, not replace, cash – a digital counterpart to familiar, trusted banknotes and coins, subject to rigorous standards of privacy and data protection.

Unlike crypto assets and stable coins, the digital pound would be a central bank digital currency or CBDC – sterling currency issued by the Bank of England and not the private sector.

As the Paper says: “This is part of the Government’s vision for a technologically advanced, sustainable, and open financial services sector that is globally competitive and acts in the interests of communities and citizens, creating jobs, supporting businesses, and powering growth across all four nations of the UK. A UK central bank digital currency – a ‘digital pound’ – would be a new form of digital money for use by households and businesses for their everyday payments needs.

A digital pound would help to ensure that central bank money remains available and useful in an ever more digital economy, continuing to bolster UK monetary and financial stability while safeguarding the UK’s monetary sovereignty in a changing global financial system. Any future digital pound would be a major piece of national infrastructure which would likely take several years to complete. Its launch would require deep public trust in this new form of money – trust that their money would remain safe, accessible, and private”.

But do we need it? Our money is already digitised. Banks do not hold stacks of paper bank notes or gold coins. Our bank holdings are simply records in digital ledgers. We can make digital payments by simply instructing our bank to do so, or by using debit/credit cards or phones.

Introducing a central bank digital currency would introduce privacy and security risks which might have much wider impacts than individual banks at present.

But relying on commercial organisations to provide open payment systems when they might prefer to build private monopolies is a risk that should be avoided.

The consultation paper does provide a good overview of the existing use of money and payment systems.

One aspect of the proposals is that there should be quite low limits on the amount of digital pounds that any one person could hold (as little as £5,000 or up to £20,000). It is not clear why there should be such a limit.

I have not personally responded to this consultation but readers may care to do so.

Consultation Paper:  https://www.gov.uk/government/consultations/the-digital-pound-a-new-form-of-money-for-households-and-businesses

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added.

2 thoughts on “A Digital Pound – Do We Need It?”

  1. The trouble with CBDCs is that they appear to offer benefits, and they can be introduced in a form which appears to be of limited scope and innocuous, but they facilitate a transition to the eventual abolition of cash and discrete personal banking. Agustín Carstens, General Manager at the Bank for International Settlements, said at the 2020 IMF conference : “…in cash we don’t know who is using a 100 dollar bill today , we don’t know who is using a 1,000 peso bill today. The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.” (Youtu.be/mVmKN4DSu3g?t=1462)

    A state where the money system is based on a CBDC would have the ability to curtail personal autonomy (some call it freedom or liberty) to any extent which it chooses. This curtailment would be enabled by the enhanced ability to conduct surveillance because under a cashless CBDC system the state could use AI to monitor every transaction an individual makes and their physical location at the time. The state would have the ability to control all aspects of an individual’s consumption or confiscate funds outright if an individual is regarded as hostile to the state. This came close to happening in Canada during the truckers’ anti-lockdown protests.

    A CBDC would also enable the state to control the store of value function of money by not only rewarding savings with positive interest as at present but also by penalising them with negative interest if the state determines that money is being hoarded.

    It seems to me that a CBDC-based money system is in fact an essential tool for a state which leans towards authoritarianism and therefore if one believes that this should be resisted then CBDCs should be resisted too. Some might say that all this is mere conspiracy theory but I do not think that is correct. There is ample evidence that most of the world is moving towards more authoritarian systems of governance, on a ratchet, so that when losses of personal autonomy occur they are seldom reversed. In the UK for example I see no sign that the Coronavirus Act 2020 is going to be repealed. I believe it’s really dangerous to give the state increased power over its citizens because such power is seldom conceded back to the individual. On this subject I recommend Daniel Hannan’s book: ‘How We Invented Freedom And Why It Matters’ which explains the vital concept that the state should be the servant, and not the master, of the individual.

    1. A good summary of possible objections. The key point is that there is no real need for a CBDC.

Leave a Reply

%d bloggers like this: