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The Bank of England and Treasury have announced plans to explore the creation of a central bank digital currency.

The UK is the latest nation to begin testing out the idea of a central bank-issued blockchain digital currency, which to date have largely been focused on a substitute for cash in circulation rather than saving deposits. Chancellor Rishi Sunak tweeted ‘Britcoin?‘ as the taskforce to consider the idea was announced.

Central bank digital currency (CBDC) is a relatively new class of digital money but these currencies are not decentralized like Bitcoin and are not intended to replace retail banks. And since the digital currency is issued by a central authority, there’s no promise of anonymity — unlike cash compared with card payments.

China has been steaming ahead with its Central Bank Digital Currency (CBDC) or “digital yuan” since 2014 for consumer transactions.

CBDCs are a digital sovereign currency twin to physical cash, which raises big questions for central banks and retail banks around the world as it could make foreign exchange a lot easier and could change how people decide to hold deposits in bank accounts.

The Bank of England said a CBDC would be a “digital money issued by the Bank of England and for use by households and businesses” that would exist alongside cash and bank deposits, rather than replacing them.

However, the central bank is only exploring the regulatory aspects of introducing a digital currency

“The government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK, and will engage widely with stakeholders on the benefits, risks and practicalities of doing so,” it said.

Instead, the Bank of England and Treasury have launched a taskforce to observe what role authorities would play if a CBDC – or sovereign digital currency – is actually rolled out.

CBDCs leverage blockchain-based accounting techniques but, being backed by a central bank, the currency would not display the price volatility of cryptocurrencies like Bitcoin.

Source: ZDNet

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