{"id":19983,"date":"2023-07-14T13:56:47","date_gmt":"2023-07-14T13:56:47","guid":{"rendered":"https:\/\/nftandcrypto-news.com\/crypto\/united-kingdoms-digital-pound-meets-public-backlash-why\/"},"modified":"2023-07-14T13:56:49","modified_gmt":"2023-07-14T13:56:49","slug":"united-kingdoms-digital-pound-meets-public-backlash-why","status":"publish","type":"post","link":"https:\/\/nftandcrypto-news.com\/crypto\/united-kingdoms-digital-pound-meets-public-backlash-why\/","title":{"rendered":"United Kingdom\u2019s digital pound meets public backlash \u2014 Why?"},"content":{"rendered":"

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British society is both civil and democratic, so it wasn\u2019t unexpected that the government of the United Kingdom would \u201cconsult\u201d the public before signing off on a digital version of the British pound. The response it received may have been surprising, though.<\/p>\n

The public canvassing conducted jointly by His Majesty\u2019s Treasury and the Bank of England between February and June of 2023 drew some 50,000 responses, and it unleashed a \u201cpublic backlash,\u201d according to The Telegraph \u2014 <\/em>a U.K. <\/em>newspaper \u2014<\/em> with \u201cwidespread public concern about privacy as well as anger over the possible consequences for cash.\u201d <\/p>\n

Not only could a digital pound, dubbed \u201cBritcoin,\u201d be used to surveil U.K. citizens, respondents feared, but it could also potentially destabilize the U.K. financial system because the digital pound would be easier for depositors to move out of commercial banks in times of crisis, promoting bank runs. <\/p>\n

This latest pushback comes as many in the crypto sector continue to view central bank digital currencies (CBDCs) with suspicion \u2014 or as clumsy government attempts to snuff out private money, including decentralized cryptocurrencies. <\/p>\n

Amid these concerns, it\u2019s worth digging deeper into some of the public concerns brought to light in the most recent U.K. consultation. Are privacy and stability issues really a substantial risk for CBDCs in advanced Western economies? On the plus side, can state-issued digital currencies potentially advance financial inclusion? And are they really designed to put cryptocurrencies out of business?<\/p>\n

Staying at the \u2018forefront of technological change\u2019<\/h2>\n

One can begin by asking why a digital pound is even needed, as some British parliamentarians recently asked. \u201cIn an increasingly digital society, the U.K. needs to keep pace with the speed of innovation that\u2019s happening in the payments sector,\u201d Ian Taylor, head of crypto and digital assets at KPMG UK, told Cointelegraph. \u201cThe Bank of England\u2019s consultation into a proposed CBDC is a sensible approach to keep the UK at the forefront of technological change without committing yet to the substantial investment needed to roll out a digital pound.\u201d<\/p>\n

Others agreed that the U.K., like many countries around the world, is struggling to come to grips with an increasingly cash-free economy. \u201cThe government is attempting to strategically place itself to allow the use of digital currencies so it is able to compete with other regions on a global stage,\u201d Cardiff University professor Nicholas Ryder told Cointelegraph. The biggest obstacle to a digital pound \u201cwould be public demand and whether we end up with a cashless society,\u201d he added.<\/p>\n

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1\/ Last week, we hosted a digital Pound use case roundtable discussion in London with Digital Pound Foundation members, with external participation and observation from @hmtreasury<\/a>, @HMRCgovuk<\/a>, @Visa<\/a>, @FISGlobal<\/a>, @NatWestGroup<\/a>, @cityoflondon<\/a>. pic.twitter.com\/EMh8t3u4WW<\/a><\/p>\n

\u2014 Digital Pound Foundation (@digitalpoundfdn) July 7, 2023<\/a><\/p><\/blockquote>\n

Still, good intentions probably won\u2019t allay privacy concerns. With a CBDC, the government could arguably generate \u201cvast amounts of data that would allow anyone \u2014 from government to third-party companies \u2014 to develop extensive profiles on the public and snoop on their spending more than ever before,\u201d Susannah Copson at Big Brother Watch, told <\/em>The Telegraph. <\/p>\n

One of the project\u2019s developers even cautioned that a digital pound \u201ccould be used to check shoppers\u2019 ages or nationalities.\u201d However, the developer also said that a digital pound would still be \u201cmore private than holding a bank account,\u201d though not cash, according to the newspaper.<\/p>\n

A real danger?<\/h2>\n

Concerns over a loss of privacy in commercial transactions with a digital pound are not entirely overblown, Annabelle Rau, financial regulatory lawyer at law firm McDermott Will & Emery, told Cointelegraph. \u201cLike any form of digital currency, a CBDC would inherently have some level of traceability, which could increase surveillance.\u201d <\/p>\n

Still, with the right design and regulations, privacy can be maintained to a significant degree. \u201cFor instance, privacy-enhancing technologies, such as zero-knowledge proofs or differential privacy, can be incorporated to protect user identities and transaction details while still enabling regulatory oversight,\u201d Rau added. <\/p>\n

Eswar Prasad, Tolani senior professor of trade policy at Cornell University and author of the book The Future of Money<\/em>, told Cointelegraph that a CBDC could indeed entail the loss of anonymity relative to the use of cash, \u201cbut central banks that are experimenting with CBDCs are adapting new cryptographic technologies to provide transaction anonymity, at least for low-value transactions.\u201d\u00a0<\/p>\n

Risk of \u2018deposit flight\u2019?<\/h2>\n

Critics from the City of London, the U.K.\u2019s financial hub, warned that a higher limit on Britcoin holdings \u2014 e.g., 20,000 pounds per individual \u2014 could destabilize the traditional banking system by facilitating bank runs or \u201cdeposit flight\u201d\u2019 from commercial banks.<\/p>\n

But is this really a risk? \u201cIf a digital pound can be withdrawn instantly during times of economic instability, it could exacerbate financial crises,\u201d said Rau. <\/p>\n

Moreover, recent events, like the collapse of several regional banks in the United States following deposit flight, \u201chave shone a spotlight on the heightened risks of bank runs in our increasingly digital financial landscape,\u201d she added. <\/p>\n

Holding limits could safeguard against such dangers, Rau conceded, but stricter limits on Britcoin holdings could, in turn, dampen public enthusiasm for the digital pound. \u201cThe optimal balance would likely involve a combination of limits, insurance schemes and regulatory oversight,\u201d she added.<\/p>\n

Cornell University\u2019s Prasad agreed that CBDCs could elevate the risk of deposit flight from commercial banks in times of perceived crisis, adding: <\/p>\n

\u201cPreventing this possibility by capping the balances that can be maintained in CBDC digital wallets seems reasonable, but could also limit the use of a CBDC and hinder its widespread acceptance.\u201d<\/p><\/blockquote>\n

Expanding access to financial services<\/h2>\n

Then there is the matter of financial inclusion, traditionally a big argument used in favor of CBDCs, especially in emerging markets. <\/p>\n

In its February consultation paper, the U.K. government stated that financial inclusion \u201cmeans that everyone, regardless of their background or income, has access to useful and affordable financial products and services such as banking, payment services, credit, insurance, and the use of financial technology,\u201d declaring it an \u201cimportant priority.\u201d <\/p>\n

According to Rau, \u201cA retail \u2018Britcoin\u2019 could potentially boost financial inclusion, but the degree to which it would do so in the U.K. is debatable.\u201d After all, the U.K. already has high levels of financial inclusion, with most adults having access to a bank account. <\/p>\n

That said, \u201cCBDCs could still enhance financial services for the underserved or those who prefer digital transactions. It could simplify transactions, reduce costs and provide access to digital economic participation to those who are still excluded from traditional banking,\u201d she added.<\/p>\n

An attempt to preempt crypto?<\/h2>\n

Not all view central bank digital currencies as benign instruments of inclusion, however. Some in the crypto community see CBDCs as an attempt to snuff out private money, including decentralized cryptocurrencies like Bitcoin (BTC). After all, one heard almost nothing about CBDCs until Facebook unveiled its Libra stablecoin proposal several years back.<\/p>\n

\u201cThe emergence of decentralized cryptocurrencies such as Bitcoin, as well as stablecoins, has certainly catalyzed central banks\u2019 interest in providing their own digital currencies, particularly as the use of physical currency fades away,\u201d noted Prasad. <\/p>\n

That said, \u201cCBDCs are not necessarily intended to snuff out private digital currencies, but are seen as a way to keep central bank money relevant for retail and peer-to-peer transactions in a world where the use of physical currency for such transactions is plummeting.\u201d<\/p>\n

CBDCs may pose some competitive challenges to decentralized cryptocurrencies, added Rau, but it\u2019s unlikely \u201cthat their primary purpose is to \u2018snuff out\u2019 such currencies.\u201d <\/p>\n

Sovereign governments are thinking more about digitizing their economies, not about threats from Bitcoin and other cryptocurrencies. Cardiff University\u2019s Ryder largely agreed. CBDCs represent \u201can attempt by governments to enter the market, to offer a more enhanced product by ways of regulation,\u201d while Rau further added:<\/p>\n

\u201cMoreover, the introduction of a CBDC could potentially legitimize the broader concept of digital currencies, which could indirectly benefit cryptocurrencies. That said, the relationship between CBDCs and private digital currencies will largely depend on specific regulatory decisions made in the future.\u201d<\/p><\/blockquote>\n

In any event, the full-scale launch of a digital pound is still many years away \u2014 if ever. According to the Atlantic Council\u2019s CBDC Tracker, a U.K. CBDC is still in its research stage \u2014 the least advanced CBDC development level.\u00a0<\/p>\n

It would still have to pass through a proof-of-concept stage \u2014 where Brazil, Russia, Turkey and some others now stand \u2014 and a pilot stage (France, China, Canada) before reaching actual launch (the Bahamas, Nigeria and a few other small countries). Even the decision on whether to move forward with a digital pound is \u201csome years\u201d away, the Bank of England\u2019s deputy governor said in June.<\/p>\n

\u2018A social decision\u2019<\/h2>\n

Overall, \u201cThe benefits and challenges of introducing a digital pound need to be carefully considered,\u201d KPMG UK\u2019s Taylor said. Factors to take into account include \u201cthe fine balance between the inevitable decline in physical cash, the importance of ensuring as an economy we are being financially inclusive, and the current lack of consumer protection in the digital assets market.\u201d<\/p>\n

How long might all this take to achieve? Could it be accomplished before the end of the decade? \u201cWe are still a few years off until trials commence,\u201d said Taylor. \u201cThe government\u2019s objective is to ensure we are innovative and continue to lead the world on payments.\u201d<\/p>\n

\u201cStriking a balance between privacy and necessary regulation \u2014 for important reasons like preventing money laundering \u2014 is a challenge all digital currencies face,\u201d added Rau. <\/p>\n

Perhaps the last word here belongs to Prasad, who identified the challenges involved in creating a central bank digital currency in a 2021 article, which arguably explains why economies in the U.S., the U.K. and elsewhere are proceeding so carefully: <\/p>\n

\u201cA digital dollar could threaten what remains of anonymity and privacy in commercial transactions \u2014 a reminder that adopting a digital dollar is not just an economic but also a social decision.\u201d<\/p><\/blockquote>\n

Collect this article as an NFT<\/em><\/strong> to preserve this moment in history and show your support for independent journalism in the crypto space.<\/em><\/em><\/p>\n