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BANK OF ENGLAND CREATES DIGITAL CURRENCY TASK FORCE

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Cryptocurrency and blockchain technology is sweeping through the world and causing a massive disruption in the centralized financial sector. In the wake of increasing adoption of bitcoin and other cryptocurrencies, as well as NFTs and other blockchain-related technologies, central banks are taking cues and developing digital currencies.

Photo by Samuel Regan-Asante on Unsplash

The need to go digital with currencies cannot be overemphasized, however, Central Banks around the world want to be in control of the digitization of money. That is why the Bank of England wants to have a digitized currency.

CRYPTO, THE FUTURE OF MONEY

Decentralized finance is causing a ripple effect in the financial world. People who, before now, were powerless against government and centralized powers, are now as powerful, controlling how they control money.

This disruption has not gone down well with the federal government as more and more people are leaving the use of fiat currency and turning to cryptocurrency to pay for goods and services and use it as a store of value.

As blockchain technology grows and more solutions are developed on the technology, cryptocurrency will become a mainstay. More people will invest in cryptocurrency and crypto trading will increase

Why?

It is simple:

Cryptocurrencies give users the power to control the market, pay low transaction fees and have their transaction request completed fast, on trading and exchange platforms such as Redot.com

For example, with fiat currency, if a person wants to transfer millions of dollars to somebody in another country, the process will take days with a series of documents filled.

But with cryptocurrency, document signing is eliminated, the transfer is done in a matter of minutes, and if there is a network delay, a day or two at most. Cryptocurrency also allows people from different parts of the world to have a currency not bound by country borders.

Unlike fiat currency where one currency needs to be converted from one national currency to the next when doing international trade, cryptocurrencies such as bitcoin and Ethereum can be easily used across different nations, borderless.

Cryptocurrencies are no longer ‘what tech people talk about’. It is now a major part of international finance, big banks and investment funds are now buying bitcoin as an investment buffer.

BANK OF ENGLAND PLANNING ON HAVING A CENTRAL BANK DIGITAL CURRENCY

Cryptocurrency’s rave has caught the eye of central banks as more and more central banks are setting up teams and committee and task forces to find a way for these banks to have digital currencies.

The Bank of England have announced, through Bitcoin news UK, that they will set up a task force that would carry out research into the benefits, risks and implementation of a central Bank Digital Currency.

In a statement, the Bank of England said, paraphrasing, that the taskforce will be charged with finding an approach that will help the Bank of England and the UK government find ways to create a digital currency that is in line with established statutory objectives. The taskforce will ensure that all the loopholes, in terms of regulations and adoption of the Central Bank Digital Currency (CBDC), are covered before the creation of the CBDC.

WHAT IS A CENTRAL BANK DIGITAL CURRENCY?

The development of a central Bank Digital currency is the government’s way of harnessing the immense potentials in the growing digital space. A central bank digital currency is the digitized version of a country’s fiat currency. While CBDC can’t be called a stablecoin in and of itself, the CBDC is pegged on the pound sterling, giving it a semblance of a stablecoin.

However, there are sharp differences between a CBDC and a stablecoin such as USDT.

Unlike stablecoins that are controlled by the market, CBDCs are controlled by a centralized government.

WHY IS THE UK DEVELOPING A CENTRAL BANK DIGITAL CURRENCY?

The Bank of England has decided to develop a CBDC because they feel that the growth of the digitized economy would take over paper fiat currency. So, in a bid to tap into the digitized world, they are developing a digitized version of the pound Sterling.

With CBDC, the UK government can control how much flows into the economy, enabling it to better track economic growth. Also, CBDC is a great way for the UK government to reduce the cost of transactions.

WHAT WORK WILL THE CENTRAL BANK DIGITAL TASK FORCE DO?

The Central Bank Digital task force is co-chaired by the deputy governor of the Bank of England, Sir John Cunliffe and the Treasury Director general of financial services Katharine bardic, will be responsible for the following activities:

  • Coordinating the objectives, use cases, risks and possible opportunities of a UK CBDC
  • Guide the design feature of the UK CBDC
  • Thoroughly access the use cases and how it can be used for international trades as well as how it will be used alongside fiat currency
  • Ensure that CBDC remains at the forefront of international innovation.

CENTRAL BANK DIGITAL CURRENCY VS CRYPTO

When some people hear about a CBDC, there is the likelihood that they think a CBDC is similar to bitcoin or altcoins. But that is not the case.

With bitcoin, there is no decentralized body that monitors or regulates the currency. Bitcoin thrives on the anonymity of its holders and the transactions.

However, with CBDC, the central bank controls the currency, its minting and distribution. There is no anonymity with the holders of the currency.

Anonymity means that when people make transactions or hold currencies, their identities can’t be revealed.

Another difference between crypto and CBDC is that Crypto is built on blockchain technology and uses either smart contract or smart work, while CBDC are centralized, and not built on a blockchain.

CBDCs are not the ideal replacement for crypto because it goes against what crypto stands for: decentralization.

ADVANTAGE OF THE CBDC TO UK CITIZENS

Although the CBDC is centralized, there are some advantages of the UK government developing a CBDC.

  1. With a CBDC, there will be no need for UK citizens to go through commercial banks to own a CBDC account.

With paper fiat currency, citizens need to have an account with a commercial bank because these banks have accounts domiciled with the Central bank.

However, because CBDCs are owned by the Central Government and the system that holds the technology is with the Central Bank, individual citizens can hold their personal savings account with the Central Bank.

WHAT ARE THE DISADVANTAGES OF CBDC?

The plethora of advantages of CBDC doesn’t absolve it of some bad sides.

Some of the question that has saturated the airwaves and social media space about UK’s CBDC are:

  • Would the CBDC be used for settlements?
  • How accessible will the CBDC be in cross-border transactions?
  • For international transactions, will the CBDC suffice? Will other international countries and business people accept the CBDC as forms of payment?