It will also outline the roles of both the Bank and the private sector in delivering a digital pound. The Bank and HM Treasury are exploring the possibility of a digital pound – a digital complement to banknotes. It could offer households and businesses another way to make and receive payments, in step with an increasingly digital economy. Governments have a fiduciary responsibility to manage national assets prudently, ensuring economic stability, protecting taxpayer interests, and maintaining liquidity for emergencies. Proposals like Trump’s national digital asset stockpile and adding Bitcoin to central bank reserves raise serious concerns about financial risk and responsible asset management.
He explained that there would be issues surrounding accessibility, security and privacy. For example, all non-cash payments require having a bank account or a connection to a formal financial institution. However, cryptocurrencies look promising, as they have several advantages over regular money, including broader financial inclusion, faster and cheaper transactions, and the elimination of intermediaries. Governments and central banks worldwide sometimes increase the money supply.
Generally speaking, the Federal Reserve can lower interest rates and increase the availability of low-cost credit in order to encourage investment and consumption. However, the Fed’s options are limited if the economy is collapsing and it has already lowered the short-term interest rate it controls to almost zero. However, if digital dollars were used in place of cash, the Fed could impose a negative interest rate by progressively reducing the electronic balances in each person’s digital currency account, encouraging investment and spending by businesses and consumers alike. Singapore’s Monetary Authority called cash a soon-to-be relic of the past that won’t work well alongside cash. The U.S. Federal Reserve, meanwhile, views digital currency as a way for the public to make digital payments without the need for deposit insurance or material assets, like gold, to represent its value.
Skinner also said the reason the U.S. dollar is the reserve currency of the world is because people trust the U.S. for a slew of reasons, which aren’t tied to any of the dollar’s technological capabilities. “We have a stable currency, we have a robust rule of law, we respect property rights, we enforce contracts, we have an independent judiciary,” she said. But aside from Bitcoin, some other newer cryptocurrencies promise lower energy consumption and higher transaction capacity. Stability is one of the integral features of any successful medium of exchange.
It’s easy to imagine how a digital rupee easily transferred between countries within seconds could be of benefit to the global economy. Despite all the excitement surrounding new forms of digital currencies, physical cash is also innovative, adapting to people’s needs. Places such as Canada and Hong Kong, for example, have added tactile features or braille to help those who are visually impaired.
So, even though Bitcoin and other cryptocurrencies have come a long way, they still haven’t amassed enough traction. However, given the potential of the crypto space to innovate and disrupt, we certainly can’t imagine a future where cryptocurrencies don’t play an important role. The 2017 Global Findex report shows that 1.7 billion adults around the world still don’t have a bank account. However, digital currencies can change this dynamic because accessing them requires just a mobile phone and internet coverage.
This progress update summarises work over the past year, including how it relates to the evolving payments landscape, such as the recently announced National Payments Vision. We expect to publish regular future progress updates, supplemented also by design notes on specific topics related to a digital pound. In yet another example of symmetry, China happens to be the country where the first paper currency appeared many centuries ago. In the seventh century, the use of metal coins was proving to be a major constraint on commerce, especially for trade between far-flung cities. The first rudimentary paper currency that appeared around this time took the form of certificates of deposit issued by reputable merchants and backed up by stores of metals or commodities. The merchants’ good reputation bolstered the use of these certificates for commercial transactions, saving traders from the drudgery of having to cart around metal coins.
