British society is both civil and democratic, so it wasn’t unexpected that the government of the United Kingdom would “consult” the public before sign
British society is both civil and democratic, so it wasn’t unexpected that the government of the United Kingdom would “consult” the public before signing off on a digital version of the British pound. The response it received may have been surprising, though.
The public canvassing conducted jointly by His Majesty’s Treasury and the Bank of England between February and June of 2023 drew some 50,000 responses, and it unleashed a “public backlash,” according to The Telegraph — a U.K. newspaper — with “widespread public concern about privacy as well as anger over the possible consequences for cash.”
Not only could a digital pound, dubbed “Britcoin,” be used to surveil U.K. citizens, respondents feared, but it could also potentially destabilize the U.K. financial system because the digital pound would be easier for depositors to move out of commercial banks in times of crisis, promoting bank runs.
This latest pushback comes as many in the crypto sector continue to view central bank digital currencies (CBDCs) with suspicion — or as clumsy government attempts to snuff out private money, including decentralized cryptocurrencies.
Amid these concerns, it’s worth digging deeper into some of the public concerns brought to light in the most recent U.K. consultation. Are privacy and stability issues really a substantial risk for CBDCs in advanced Western economies? On the plus side, can state-issued digital currencies potentially advance financial inclusion? And are they really designed to put cryptocurrencies out of business?
Staying at the ‘forefront of technological change’
One can begin by asking why a digital pound is even needed, as some British parliamentarians recently asked. “In an increasingly digital society, the U.K. needs to keep pace with the speed of innovation that’s happening in the payments sector,” Ian Taylor, head of crypto and digital assets at KPMG UK, told Cointelegraph. “The Bank of England’s consultation into a proposed CBDC is a sensible approach to keep the UK at the forefront of technological change without committing yet to the substantial investment needed to roll out a digital pound.”
Others agreed that the U.K., like many countries around the world, is struggling to come to grips with an increasingly cash-free economy. “The government is attempting to strategically place itself to allow the use of digital currencies so it is able to compete with other regions on a global stage,” Cardiff University professor Nicholas Ryder told Cointelegraph. The biggest obstacle to a digital pound “would be public demand and whether we end up with a cashless society,” he added.
1/ Last week, we hosted a digital Pound use case roundtable discussion in London with Digital Pound Foundation members, with external participation and observation from @hmtreasury, @HMRCgovuk, @Visa, @FISGlobal, @NatWestGroup, @cityoflondon. pic.twitter.com/EMh8t3u4WW
— Digital Pound Foundation (@digitalpoundfdn) July 7, 2023
Still, good intentions probably won’t allay privacy concerns. With a CBDC, the government could arguably generate “vast amounts of data that would allow anyone — from government to third-party companies — to develop extensive profiles on the public and snoop on their spending more than ever before,” Susannah Copson at Big Brother Watch, told The Telegraph.
One of the project’s developers even cautioned that a digital pound “could be used to check shoppers’ ages or nationalities.” However, the developer also said that a digital pound would still be “more private than holding a bank account,” though not cash, according to the newspaper.
A real danger?
Concerns over a loss of privacy in commercial transactions with a digital pound are not entirely overblown, Annabelle Rau, financial regulatory lawyer at law firm McDermott Will & Emery, told Cointelegraph. “Like any form of digital currency, a CBDC would inherently have some level of traceability, which could increase surveillance.”
Still, with the right design and regulations, privacy can be maintained to a significant degree. “For instance, privacy-enhancing technologies, such as zero-knowledge proofs or differential privacy, can be incorporated to protect user identities and transaction details while still enabling regulatory oversight,” Rau added.
Eswar Prasad, Tolani senior professor of trade policy at Cornell University and author of the book The Future of Money, told Cointelegraph that a CBDC could indeed entail the loss of anonymity relative to the use of cash, “but central banks that are experimenting with CBDCs are adapting new cryptographic technologies to provide transaction anonymity, at least for low-value transactions.”
Risk of ‘deposit flight’?
Critics from the City of London, the U.K.’s financial hub, warned that a higher limit on Britcoin holdings — e.g., 20,000 pounds per individual — could destabilize the traditional banking system by facilitating…
cointelegraph.com