‘Britcoin’ will lead to a significant infringement of our civil liberties
Last week, the Government released its consultation for a regulatory regime for crypto assets. While its latest regulatory 80-pager may not stand out to most, buried within was a development that should concern everyone.
The paper stated that a decision was likely to be made by 2025 on whether to introduce its own Central Bank Digital Currency, or “CBDC” – a project already unofficially dubbed as “Britcoin”.
Unlike privately issued cryptocurrencies like Bitcoin and Ethereum, which are not centrally controlled, the central bank would be the sole issuer and administrator of any CBDC. It means the bank would effectively play the role of Big Brother, with every transaction made using Britcoin carefully tracked.
Some fear this could be used to nudge or even force consumers towards whatever spending habits the state sees fit.
Although the consultation insists that the Bank of England and the Government “would not see any personal data”, we need only think back to the pandemic for evidence of how quickly the unthinkable can become the norm.
Behavioural economists and nanny statists would be frothing at the bit to have access to this well of precious personal information.
It was only last year that protesters in Canada had their bank accounts seized because of their protests against the government there – why wouldn’t our political leaders use their access to peoples’ financial information to do the same?
What of cash in this brave new world? In Kenneth S. Rogoff’s 2016 book The Curse of Cash, he proposes phasing out most paper money not just to “fight crime and tax evasion” but also that “paper money can also cripple monetary policy”.
Currently, central banks must maintain nominal interest rates above zero, because if they were negative, investors would be incentivised to abandon treasury bills and stockpile cash.
In a cashless society, central banks are not bound to these monetary restrictions and there would be no choice but to spend and stimulate in economic downturns. In this context, CBDCs make sense for a self-serving central banker.
It is possible to see central banks in the future using CBDCs in a cashless society to enable negative nominal interest rates – although both the Bank of England and HM Treasury have stated they have no intention to abolish cash. The same may not be said for the People’s Bank of China.
It is believed that at the wholesale level (meaning between financial institutions), having a CBDC could improve transaction speeds and overall economic efficiency. But only organisations approved by the Bank of England or other relevant regulators would be given access to this system.
That power could be used to raise barriers to entry for innovative newcomers – compounding the already deep-rooted regulatory advantages that large financial establishments have enjoyed for decades.
If Britain does adopt its own official digital currency, it is vital that it is done with a clear appreciation of its inherent dangers and that the rules are drafted with the rights to privacy and due process in mind. Although recent consultations on the issue have nodded at respecting civil liberties, it is reasonable to fear that this may end up being empty rhetoric.
Jamie Legg is technology and projects manager at the Institute of Economic Affairs think tank.