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Would the proposed Britcoin be the new Bitcoin or Britpop?

By Dan Moore

10:09, 21 April 2021

The Bank of England is to investigate the potential of a new state-backed digital currency, nominally called Britcoin.

Why be crypto or cryptic when you can pebbledash everyone with the bleeding obvious?

It is possible Rishi Sunak was thinking along these lines when after soon announcing the establishment of a taskforce consider a Central Bank Digital Currency (CBDC), he tweeted the word ‘Britcoin’.

The Chancellor’s eagerness to be the person behind the name might seem a little geeky, but that doesn’t diminish the potential appeal of a central bank-backed digital currency. Digital works, and if you are a convert to cryptocurrency, or if NEO in China appeals, it also may be the future.

Special Drawing Rights: the next generation?

Back in 1969, when gold and US dollar reserves were in short supply, the International Monetary Fund (IMF) introduced Special Drawing Rights (SDR), or units of currency that were allocated to companies.

While not currency in the traditional sense of the word, they currently comprise a slush of five currencies, the US dollar, the British pound, the Japanese yen, Chinese yuan and the euro. Initially pegged to gold, its importance waned in the 1970s when the US dollar began to recover.

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A domestic, rather than basket case

SDR seems a million years from where we are now, what with cryptocurrencies, but there are similarities. Neither are real, physical currencies – they operate behind the scenes rather than on exchanges, just as neither is fixed to any one currency.

In some cases (Facebook’s Diem springs to mind) cryptocurrencies can be fully backed by a basket of currencies. Of course, Diem doesn’t appear as a direct claim on a central bank’s balance sheet. It carries a counterparty risk because it’s a claim on the consortium or the custodian’s balance sheet.

Also, given the free-flowing nature of currencies, the value of one Diem to the dollar, or any other currency in the bucket, will fluctuate. This can affect the value, not least in terms of foreign exchange.

Britcoin would not be a cryptocurrency-solution

Cryptocurrencies are notoriously fickle, something a government-backed digital currency cannot afford to be, and indeed wouldn’t be, as the Bank of England (BoE) is eager to point out.

AUD/USD_zero

0.67 Price
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Long position overnight fee -0.0071%
Short position overnight fee -0.0011%
Overnight fee time 21:00 (UTC)
Spread 0.00030

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156.23 Price
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AUD/USD

0.67 Price
-0.410% 1D Chg, %
Long position overnight fee -0.0071%
Short position overnight fee -0.0011%
Overnight fee time 21:00 (UTC)
Spread 0.00030

EUR/USD

1.09 Price
-0.120% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0002%
Overnight fee time 21:00 (UTC)
Spread 0.00018

Calling any CBDC “fundamentally different to cryptocurrencies or cryptoassets”, the BoE was at pains to point out that this alternative to cash was no riskier to the public, business or economy at large.

Sterling and Britcoin equally valued

In effect, a Bank of England-backed CBDC would always be worth the same as the sterling in your pocket or your current account. It simply mirrors the value of physical cash and as such is in no way riskier. Who would dare say that about cryptocurrencies?

Any instrument that’s backed by a basket of assets, as is the case with SDR, fluctuates due to the varying value of each component domestic currency.

By definition, Britcoin couldn’t stumble on this point because it would be effectively the identical twin of the pound.

Reasons to be excited?

This brings us back to the start. Is a CBDC feasible or just another airy-fairy idea that will see lots of pencils on Threadneedle Street chewed, but fail to ignite public and business interest in the same way as Bitcoin has done?

Of course, the answer lies with the BoE, but if it is at all influenced by what’s happening in China, it might be a good time to exercise those ear muscles, because they could need pricking up.

Could Britcoin mimic NEO’s success?

NEO, chief rival platform of Ethereum, has captured the imagination of investors keen on China. As we reported earlier this month, Neo is now priced at $67.70, an 840% value increase on where it was this time last year, which just goes to show that government involvement in digital currency can yield results.

With this in mind, Sunak’s Britcoin proposal may have more to it than just a catchy moniker. It could open doors for consumers and business. And in these troubled times, the fact that it is backed by the BoE and therefore a safe bet, rather than a potential roller coaster, could be its ticket to ride.

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