Britain is going through difficult economic times. So far, leaving the EU has done the UK far more harm than good. The weakness is also reflected in the value of the national currency. The British pound experienced a historic slide between June 2021 and September 2022.
Against the US dollar, the value of a pound fell from $1.42 to as low as $1.03. At one point, a dollar was worth the same as a pound. The pound also lost strength against the euro. The value of the pound slipped from just below 1.22 euros in March 2022 to around 1.08 euros in September 2022.
The pound has recovered somewhat since then. For 1 pound you get about 1.12 euros or 1.20 dollars at the moment. However, the state of the national currency is still weak and the economic problems are still great. This may play a role in the plan to launch its own national digital currency in Great Britain. Digital money could establish a new method of payment that is more respected than cash in the country. The government also expects the move to have practical benefits.
Britain continues with proposals for digital pound https://t.co/qXf6rtVHNP pic.twitter.com/bEIUuGPSf7
— Reuters UK (@ReutersUK) February 7, 2023
Digital pound is not intended to replace cash
The Ministry of Finance in London has now announced that plans to introduce the digital pound are being discussed with the central bank. The new coin is to be issued by the Bank of England and will therefore not be managed in a decentralized manner, as is the case with Bitcoin, for example. It should be fully guaranteed by the bank and its value would be linked to the cash. Above all, the government promises to create a convenient digital payment method for everyday payments for private consumers and companies – both in stationary trade and online trade.
The government emphasizes that it is not intended to replace the digital pound, but to complement it. “There will continue to be cash. A digital pound issued and sponsored by the Bank of England could be a reliable, accessible and easy-to-use new method of payment,” said Treasury Secretary Jeremy Hunt.
However, it may still be some time before the new digital pound actually exists. There is currently talk of an introduction from the second half of the decade at the earliest and therefore not before 2026. First of all, those responsible want to check how the project can be implemented. Among other things, there are plans to introduce a wallet function that allows purchases to be made conveniently using a smartphone or corresponding payment card. According to the government’s plans, the digital currency should only be used as a means of payment. There are no plans to pay interest on credit balances, so the digital pound is not interesting as an investment.
The US is exploring the idea of a digital dollar, which is a digital asset backed by a country’s government and created by its central bank. @BDO_USAinsight for important details plan sponsors need to know: #Digital Assets #PlanSponsors https://t.co/8IoKCCModo pic.twitter.com/XJyzdAnoIV
— Craig D Barrett (@craigdbarrett) January 31, 2023
The EU and US are examining their own digital currencies
The UK is not alone in its plans for a digital currency. Efforts are underway around the world to introduce national digital currencies or this has even been done in individual countries.
For example, there have been corresponding tests within the eurozone for some time. A two-year study is currently underway to analyze how the project can be implemented on a technological level and what the challenges are in terms of data protection. However, as in Great Britain, a digital euro, if it becomes a reality, should not be put into circulation until 2026 at the earliest.
There could also be a digital dollar in the US in the future. US President Joe Biden issued an executive order calling for an examination of the opportunities and risks of a centrally controlled digital currency for the United States. The chief executive of the central bank Jerome Powell is open to such a development at least. He has already suggested that a nationally managed digital dollar, which could be tied in value to the real dollar, could be a better alternative to privately created digital currencies and stablecoins. Fed Vice Chairman Lael Brainard is also counted among the supporters of digital dollar.
However, there are also concerns in the United States about such plans. This includes US currency watch Christopher Waller. He criticized that so far there have been no convincing arguments why the US should create such a digital version of the dollar. After all, the dollar is still considered the global reserve currency.
occasion #CBDCs rolled out in different countries, one thing becomes clear: the reality does not match the hype. Acceptance is low and central bankers are increasingly skeptical. Even the governor of the Bank of England has recently poured cold water on the idea. https://t.co/Dd0Aj42M57
— Roger Albyn (@AlbynRoger) February 2, 2023
China’s e-yuan is on fire
China is far ahead of the US in introducing its digital currency. The e-yuan is already fully developed technologically and has already been put into circulation. In April 2022, for example, China launched a campaign in which digital money of 15 million yuan was given to citizens of a district in the city of Shenzhen as a gift. To stimulate public interest, there have already been rafts for e-yuan through social networks.
However, there is clear criticism of the implementation in China as well. The observer fears that China wants to use electronic money to control its population even more. Accordingly, the e-yuan is a tool to expand the surveillance state in the country. Meanwhile, China is trying to force other digital currencies like Bitcoin out of the country. Bitcoin mining and transactions have already been banned.
Lots of possibilities for digital money in Africa
Digital currencies have already been implemented on the American continent. Experts see great potential for digital money in Africa in particular, as many residents still do not have access to a regular bank account. This is partly due to the poor infrastructure of the country, so that the rural population in particular can benefit from digital money. Because many Africans now have smartphones as a means of accessing a digital means of payment, even in structurally weak regions.
Nigeria is a pioneer here. In order to spread the “eNaira” more widely among the population, even future cash withdrawals are restricted. A corresponding law was introduced for that purpose.
Bitcoin as a store of value that is not threatened
What do the global efforts towards national digital currencies mean for Bitcoin? Here you have to make a clear distinction between BTC as a payment method and BTC as a store of value. The plans of individual countries will probably make it much more difficult to establish Bitcoin as a global currency. Because in the end, users will choose a digital payment method. At least some digital currencies are hedged against Bitcoin by state central banks and BTC should not have as much volatility due to its connection to “hard” money, which makes them seem more suitable as a currency.
On the other hand, Bitcoin is above all a store of value for investors. And central bank currencies are unlikely to change that. Because these are not designed as investments and in most cases, such as in Great Britain, they will not give investors any return.
Cryptocurrency with potential 2023
Cryptocurrencies are a highly volatile, unregulated investment product. Your capital is at risk.