The digital pound: everything you need to know about the Bank of England’s “Britcoin”


Lady paying with her phone

The popularity of digital currencies, in some form or another, has taken off in recent years. While it’s been a somewhat turbulent journey for the digital currency market, the number of new cryptocurrencies would suggest continuing interest. 

Indeed, Statista reports there were 8,685 different currencies in February 2023, a rise from just 562 in 2015.

So, it may come as no surprise to learn that many central banks around the world, including the Bank of England (BoE) are looking to get involved. 

The Treasury recently released a consultation paper detailing the potential future need for a digital pound, dubbed the “Britcoin”. While the currency won’t launch anytime soon, the paper offers an interesting glimpse at how your personal finances, and money itself, could shift in the near future. 

So, keep reading to discover exactly how the digital pound could work, and why it could be necessary in an increasingly cashless society. 

The Britcoin would be an entirely digital currency backed by the Bank of England

The digital pound is a proposed form of digital currency issued by the BoE rather than the private sector. You could use these “central bank digital currencies”, or CBDCs, in your day-to-day spending, and their introduction wouldn’t entirely replace traditional money. 

CBDCs aren’t a new idea, as around 100 countries around the world have reportedly been looking into making their own. These include:

  • US
  • China
  • Sweden
  • Many others in Europe.

Although you’d store Britcoin in a digital wallet, spending it would work much like digital banking today: you could view your balance, pay for goods and services with your phone or “smartcard”, and even make transfers to friends and family. 

It’s important to note that “Britcoin” is not a cryptocurrency

There’s a good chance that cryptocurrencies, such as bitcoin and ethereum, are the first things that come to mind when you initially hear “Britcoin” or “digital currency”. Though, it’s important to note the distinction between the two.

As mentioned, digital sterling would be more stable and tied to the value of the pound unlike cryptocurrencies that are generally unbacked by a “tangible” currency or asset. This means that, in theory, Britcoin’s value would be secure – £10 in digital sterling would have the same value as a £10 note. 

This stability is why the digital pound could potentially run alongside cash and deposits, unlike the typical volatility of bitcoin and other cryptocurrencies, which would make it tricky to pay for goods and services. 

It’s vital to remember that, according to the consultations from the BoE, Britcoin would essentially be linked to a central currency, the idea being that this should lend it stability. 

This differs from cryptocurrencies, which are unregulated, extremely volatile, and high risk. As such, cryptoassets are normally an unsuitable investment for most people. 

Payments are already increasingly digital, so a new currency could help central banks take back control

One of the key reasons the BoE is considering a digital currency is that cash transactions and usage has declined sharply in recent years, as the chart below shows.

Source: The Treasury’s consultation paper.

The above chart shows that card payments accounted for 58% of UK payments in 2021, with cash payments falling from 55% to 15% over the last decade.

One of the primary aims of Britcoin is to give you new ways to pay for everyday transactions in an increasingly cashless society without the need to rely on traditional banks or digital payment accounts.

By ensuring this “uniformity” in money and giving consumers more options to make payments, private companies could be well-poised to innovate. Better yet, the BoE even stated that it could make transactions more efficient since the majority are already digital.

On a more macroeconomic level, the belief is that if there’s widespread adoption of cryptocurrencies, banks could lose control over the supply of money and payment systems, undermining financial and monetary stability as a result.

By issuing their own forms of digital currency, central banks around the world could reclaim some of this control. For instance, they could alter interest rates on the digital pound rather than needing to influence banks and building societies, directly encouraging, or discouraging, borrowing and spending. 

Though, some experts have argued that the entire banking sector could be destabilised if central banks issue their own digital currencies, and could even make mortgages and other loans more expensive. 

Widespread adoption of the Britcoin would likely mean large sums of money would potentially shift from savings accounts with banks or building societies. This is because many consumers may prefer holding their cash as Britcoin rather than in a bank account. 

In this scenario, banks may increase interest rates to borrowers such as mortgage lenders to preserve margins.

Despite all this, it’s worth remembering that the design phase for Britcoin will likely continue until 2025. Even after this, it’s not guaranteed that it will go ahead. 

Still, it allows you to consider how your finances could shift in the coming years with the introduction of innovative technologies, and why you should prepare for changes to the way the banking and payment systems operate. 

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Please note

Crypto assets are not regulated financial products so please be aware that trading them carries a considerable amount of risk for your capital. Cryptocurrencies are also not covered by existing consumer protection laws.