The UK plans to impose a cap of between £10,000 to £20,000 ($12,017 to $24,033) for initial digital wallet holdings as it pushes forward with plans to introduce a Central Bank Digital Currency (CBDC), according to a Bank of England (BOE) official.
According to a Bloomberg report published on Feb. 8, the BOE plans to introduce a CBDC as early as 2030.
But efforts are underway to mitigate the effects this would have on the coffers of traditional UK banks.
The BOE is currently undergoing a consultation process until June regarding the adoption of the CBDC, referred to by industry and media as “Britcoin.”
Bank of England Deputy Governor, Jon Cunliffe, has indicated that the need for a digital version of the pound will likely arise in the near future, namely to facilitate seamless transactions through online and mobile platforms. These developments are being closely monitored by industry experts, as they may have significant implications for the future of finance in the UK.
According to government data, the entire UK financial services sector brought in £174 billion in 2022, amounting to 8.3% of total economic output.
“A limit of £10,000 would mean that three-quarters of people could receive their pay in digital pounds, while a £20,000 limit would allow almost everyone to receive their pay in digital pounds,” Cunliffe said.
Analysts say that the key for regulators will be in protecting the CBDC from manipulation and speculation. “The BOE wants to make an instrument that works like cash and holds its value — but won’t accrue interest or become a tool of speculators,” Bloomberg reported.
While having a CBDC would give the central bank more control over the economy, some analysts warn that this may come at the expense of reducing the role of traditional banks.
An increase in the adoption of CBDCs could lead to a decrease in demand for traditional bank deposits, as consumers may choose to hold their savings in the form of a CBDC instead. This could result in reduced revenue for traditional banks and potentially lead to a decrease in lending, as banks may struggle to find adequate funding sources, analysts have warned.
Noting that everyday transactions using cash are down 60% from only 15 years ago, Cunliffe said that the BOE is looking to fill the void left by the declining use of regular paper fiat, and it appears that the BOE is taking measured steps in an effort to mitigate the concerns of traditional banks.
“It’s perhaps no accident that use of cash went down in the pandemic, but the holdings of cash went up,” Cunliffe said.
“There are periods when people want to know that their money is anchored or could be anchored in the safest form, which is cash. If we think cash disappears, or it’s just there but hardly usable…then I think you have a risk that confidence in money breaks down.”
The post Britcoin CBDC touted as replacement to cash by Bank of England appeared first on CryptoSlate.
