Are we getting a UK digital currency?

The Treasury and The Bank of England (BoE) will start consulting on the possibility of a UK digital currency. The proposed digital currency would be launched by the central bank, making it a type of fiat currency rather than a standalone cryptocurrency with no regulation. It could be used to pay for goods and services throughout the UK as legal tender, but it would not replace the Great British Pound.

Other countries have already started researching and testing national digital currencies. China has been spearheading the charge and has been working on creating a digital Yuan since back in 2014.

How will a UK digital currency work?

The vision for a UK digital currency is for the coin to run alongside the current monetary system rather than replacing it. It will be available for use by businesses and the general public.

It differs from mainstream cryptocurrencies such as Bitcoin because a national digital currency is tied to the central bank, whereas cryptocurrencies have no central authority and remain unregulated and volatile. This should make fewer people afraid to use a national digital coin in comparison to cryptos.  

Will the UK get a digital currency?

The seed has just been planted on the possibility of having a UK digital currency, and it remains unknown whether the project will progress or not. The consultation between The Treasury and The BoE will start in 2022 and is labelled as a research and exploration phase of the project.

A joint paper will be written to outline the UK’s proposed Central Bank Digital Currency (CBDC). It will assess the feasibility of the project and how a UK digital currency could benefit wider society. It is suggested that owning a national digital currency will assist countries to remain at the forefront of fintech advancements and provide everyday convenience.

The consultation phase will be pivotal in deciding whether the CBDC should go ahead into a trial phase. If the digital coin was to be introduced, it might not become available for another five years at least.

What other countries are considering national digital coins?

As mentioned, China is leading the race on introducing a CBDC of its own and has already started trailing a digital Yuan in three of its largest cities. Closer to home, the European Central Bank has already started initiating plans for a digital euro, which include two years of research and three years of testing.

Nigeria has become the first African nation to begin a CBDC pilot, whereas the El Salvador Government decided to adopt Bitcoin as legal tender. Only the latter received fierce backlash from the general public.

However, not every nation has been supportive of the idea of a national digital currency. In the US, little has been done to plan for a digital US dollar thus far.

December 2021