- The UK government opened a public consultation on cryptocurrency regulation
- The Bank of England simultaneously released a consultation paper on “Britcoin”
- There could be a cap of 20 000 pounds per wallet for digital Pounds
The United Kingdom has closely monitored the growth and usage of cryptocurrency, recently revealing plans to regulate the sector. Cryptocurrency has been a popular topic of discussion in recent years because of its potential to change the financial industry and its association with illicit activities. The UK government plans to regulate cryptocurrencies as they seek to strike a balance between innovation and protecting users and the economy. The UK government also released a consultation paper for the Digital Pound CBDC, which has been affectionately nicknamed Britcoin.
Economic Secretary to the Treasury Andrew Griffith said:
We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology. But we must also protect consumers who are embracing this new technology – ensuring robust, transparent, and fair standards.
The UK government opened a public consultation on crypto assets regulation on February 1, 2023, running through to April 30. FTX’s failure played a part in informing the regulatory approach according to the description of the consultation on its website.
One of the critical areas of cryptocurrency regulation is anti-money laundering (AML) and countering the financing of terrorism (CFT). Cryptocurrency exchanges and service providers must implement strict AML/CFT measures, including customer due diligence, reporting suspicious transactions, and maintaining accurate records. To prevent cryptocurrencies from being used for illegal activities such as money laundering, terrorist financing, and tax evasion.
Consumer protection key in cryptocurrency regulation
The UK government is also looking to protect consumers who use cryptocurrencies. This includes ensuring that consumers have clear information about the risks and benefits of investing in cryptocurrencies and that they have access to dispute resolution mechanisms in case of disputes with cryptocurrency exchanges or other service providers.
Another area of focus for the UK government is the stability of the broader financial system. The government is concerned about the potential for cryptocurrencies to be used for speculative purposes, which could lead to instability in the financial markets. To address this, the government is considering introducing measures to prevent cryptocurrencies from being used for excessive speculation.
In addition, the UK government is also exploring the potential for central bank digital currencies (CBDCs). CBDCs are digital versions of a country’s fiat currency, issued and backed by the central bank. The government sees the potential for CBDCs to provide a more efficient and secure means of making digital payments and is exploring the benefits and risks of issuing a CBDC.
The UK government’s plans to regulate the cryptocurrency sector aim to strike a balance between promoting innovation and protecting consumers and the wider economy. By creating measures to prevent illicit activities, protect consumers, and promote stability, the government hopes to create a conducive environment for the growth of the cryptocurrency sector. The UK government’s plans for regulating cryptocurrencies are a positive step towards ensuring that the sector is well-regulated and that citizens and the broader economy are protected.
Digital Pound aka “Britcoin” by the end of the decade
The United Kingdom’s Central Bank Digital Currency (CBDC) is a topic of much interest and discussion in finance and economics. A CBDC is a digital version of a traditional (fiat) currency. Backed by the central bank and designed to co-exist with physical cash and bank deposits. The UK is exploring the potential of a CBDC to modernise its payment system and ensure that it remains at the forefront of innovation in the digital age. The Bank of England published the digital Pound or “Britcoin” working paper on the 7th of February.
Britcoin may have a limit
The Bank of England also released a consultation paper on Britcoin. The website states that it is too early to decide whether to introduce the digital Pound. The Bank will forge ahead with work on the UK CBDC in the meantime. An interesting feature of Britcoin is the proposal for a limit on holdings in a wallet. There could be a cap of 20 000 pounds per wallet for digital Pounds. The digital Pound is intended to be a transacting currency rather than a store of value. The slow pace of CBDC introduction is similar to South Africa has chosen approach.
CBDCs have been a hot topic recently, with over 90 countries working on issuing their digital currencies. So far, five active CBDCs exist worldwide, including China’s Digital Yuan and Nigeria’s eNaira.The UK’s central bank, the Bank of England, has been researching the potential benefits and challenges of issuing a CBDC since 2020. The bank has stated that a CBDC could provide a more secure, efficient and accessible payment system. Particularly for those who currently lack access to traditional banking services.
Britcoin CBDC could improve financial inclusion, transacting
One of the main benefits of a CBDC is that it could help to increase financial inclusion. There are still significant numbers of people who are unbanked or underbanked in the UK, meaning they either lack access to a bank account or have limited access to financial services. A CBDC would provide these individuals with a secure and accessible way of holding and spending their money.
Another advantage of a CBDC is that it could increase the speed and efficiency of payment transactions. Currently, many payment systems in the UK rely on intermediaries, such as banks. This can slow down the process and increase the risk of fraud. A CBDC could bypass these intermediaries. Reducing the time it takes for payments to be processed and making transactions more secure.
CBDC present challenges
However, a CBDC would also present several challenges, including privacy concerns and the potential for money laundering and other illicit activities. The Bank of England has stated that it is aware of these challenges. It is taking steps to address them through a robust set of rules.
The UK’s exploration of a CBDC is considered a sign of its commitment to improving its payment system. In so doing, it remains at the forefront of innovation in the digital age. The potential benefits of a CBDC in terms of financial inclusion and increased efficiency make it a good development for the UK economy and citizens. However, there are some challenges to consider. Putting cryptocurrency regulation before a CBDC is a prudent step. This may prove a wise step, too, in future.