24 June 2021
New Proposals in Digital Currencies
A digital currency is a type of currency or asset that is managed, exchanged and stored digitally, for example online. Cryptocurrency, such as bitcoin, virtual currency and central bank digital currency (CBDC) are all types of digital currency. Bitcoin, which was invented in 2008 and first used in January 2009 is probably the best-known cryptocurrency. Read our latest article below to learn about the latest cryptocurrency boom...
How much is a Bitcoin worth?
As of April 2021, one bitcoin is equivalent in value to just over £40,000 Sterling. As a digital currency, however, whilst it can be converted into real money, it does not have any physical existence and is essentially just software.
The Bank of England has recently announced a proposal to create a CBDC. Currently, the electronic money which the Bank of England provides can only be used by banks and certain financial institutions. The introduction of a CBDC would open the direct use of electronic money that the Bank of England creates to households and businesses also. Any CBDC created would be brought in alongside cash and bank deposits rather than as a replacement.
The decision as to whether a CBDC will be brought in is yet to be made as the Bank of England continues to research the idea. The Bank of England is interested in creating a CBDC as we are experiencing a period of change in money and payments. By 2018 more payments were made by card than by cash, indicating a move towards a cashless society.
A discussion paper was issued in March 2020 wherein the Bank of England invited feedback on the proposals from those in the payments industry, academics, and any other interested parties. In the discussion paper, the Bank of England outlined the opportunities which a CBDC could create in assisting the Bank of England to maintain financial and monetary stability.
Examples of the opportunities identified are: improving the availability of central bank money, addressing the risks associated with private money creation, meeting the future payment needs of an increasingly digital economy, and encouraging the competition, innovation and efficiency of payments. Responses to the discussion paper were requested by 12th June 2020 and following the initial discussion, the Bank of England, in conjunction with HM Treasury, set up a CBDC Taskforce as well as two external engagement groups.
The first external engagement group is the CBDC Engagement Forum which is jointly chaired by the Bank of England and HM Treasury. It has been created to engage with senior stakeholders to obtain strategic input on the aspects of CBDC which are not related to technology. The second external engagement group will look at the technology aspects of a potential CBDC by engaging with an array of experts and perspectives. Terms of reference for each group and instructions on how to apply to become a member are given on the Bank of England website.
Any potential CBDC would be very different to cryptocurrencies and cryptoassets such as Bitcoin, in the main because cryptocurrencies are not issued by the central bank. The Bank of England's Financial Policy Committee has carried out an assessment of cryptoassets and came to the conclusion that they pose no current risk to financial or monetary stability in the UK. However, it did state that the regulatory framework in place currently may need to be adjusted as a result of innovation in the payments sector, such as stablecoins.
It is also worth noting that those investing in cryptocurrencies or cryptoassets do so with the risk of losing their money, just as with any private investment. The Bank of England will continue to monitor the evolution of cryptoassets and the UK's response to these as part of the Cryptoasset Taskforce, of which HM Treasury and the Financial Conduct Authority are also members.
We can support you!
We specialise in the latest digital trends and are experts in cloud accounting. We help all our clients to ensure they have optimum security with their finances, and have invaluable knowlege to help support you in making smart digital decisions and becoming more profitable. Contact our Director, Nick Bonnello, directly today on 0115 964 8860 or email him at firstname.lastname@example.org to find out how we can help you across all areas of your business.
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.