Bank of England seeks views on ‘Britcoin’ impact
There was much excitement when, in April, the chancellor, Rishi Sunak, announced the launch of a new taskforce between the Treasury and the Bank of England to co-ordinate exploratory work on a potential central bank digital currency.
The currency was immediately nicknamed ‘Britcoin‘ although it is unlikely to take that name if or when it is eventually launched.
As part of the work, the Bank was asked to consult widely on the benefits, risks and practicalities of doing so.
That work is ongoing but, in the meantime, the Bank has published a discussion paper aiming to broaden the debate around new forms of digital money.
The issue is of huge importance to the Bank because its two main functions, as an institution, are to maintain both the monetary and financial stability in the UK. The rise of digital money has implications for both.
The Bank has already made clear that it is sceptical about cryptocurrencies, such as Bitcoin, which its governor, Andrew Bailey, has said “has no intrinsic value”.
Yet these currencies must be differentiated from a central bank digital currency.
The concept of a central bank digital currency may be confusing to some but Sir Jon Cunliffe, the Bank’s deputy governor for financial stability, said it was actually quite straightforward.
The Bank of England is responsible for UK monetary policy and financial stability
He told Sky News: “At the Bank of England, we issue banknotes, the notes that everybody holds in their pocket, but we don’t issue any money in digital form.
“So when you pay with a card or with your phone on a digital transaction, you’re actually using your bank account, you’re transferring money from your bank account to somebody else’s.
“A central bank digital currency, a digital pound, would actually be a claim on the Bank of England, issued by us, directly to the public.
“At the moment we only issue digital money to banks, we don’t issue to the general public, so it will be a digital pound – and it will be similar to some of the proposals being developed in the private sector.”
Sir Jon, who is co-chairing the taskforce with the Treasury’s Katharine Braddick, said that, while a central bank digital currency and a cryptocurrency like Bitcoin might use the same technology, there were big differences.
He went on: “[Central bank digital currencies] use the same technology but…they aim to have a stable value. They’re called stable coins and some of the technology companies, the big tech platforms, are just thinking about developing digital coins of that sort.
The European Central Bank is exploring a similar digital currency for the euro area
“A central bank digital currency would be a digital coin, actually a digital note, issued by the Bank of England.”
Sir Jon said such currencies would have to the potential to bring down costs for businesses depending on how they were developed.
He added: “They do offer the potential to bring down cost. At the moment the average cost, I think, for a credit card transaction is about just over half a per cent, but of course if you’re a small tea room in Shoreham-on-Sea, you’re going to be paying more than that in some cases, well over 1% for that transaction.
“So it could be cheaper, it could be more convenient. These new forms of money offer the ability for them to be integrated more with other things through their software. So you can think of smart contracts, in which the money would be programmed to be released only when something happened. You could think, for example, of giving the children pocket money but programming the money so that it couldn’t be used for sweets.
“There’s a whole range of things that money could do – programmable money, as it’s called – which we can’t do with the current technology.
“Now whether there’s a market, whether there’s a demand for that, whether that’s something people want in their lives, I think is another question – but we need to stay at the forefront of thinking.
“We need to stay ahead of these issues because we’ve seen changes can happen really fast in the digital world – people didn’t think smartphones had much or a market when the iPhone was first introduced – and it’s important we keep abreast of those issues.”
He noted that, under one ‘illustrative scenario’ set out in the Bank’s discussion paper, the cost of credit could rise in the event of people withdrawing deposits from the banking sector and migrated to a form of digital money.
This is why the Bank is seeking, in this discussion paper, to establish the conditions under which people might prefer using new forms of digital money to existing forms, such as cash or ‘private money’ like bank deposits. But that is easier said than done.
Sir Jon added: “It’s very difficult to know what the demand for something like this will be. It could be quite small – people might just want to keep a small wallet of digital coins for use on the internet, or whatever, but it could be quite large.
“That’s one of the things we want to try and understand better and [that’s why] we want to get views on how it would operate.
The value of cryptocurrencies such as Bitcoin have fluctuated wildly since their conception
“It’s important to say, given that it’s so difficult to estimate whether something like this would take off, that, if it were introduced, I think one would have to be quite careful at the beginning – you wouldn’t want to be in a position where something became very popular and had impacts that you hadn’t foreseen.”
To that end, the Bank’s discussion paper also considers the potential risks posed to economic stability by new forms of digital money.
The deputy governor went on: “It’s really fundamental that people can trust the money they use every day in the economy, that they don’t have to think about ‘I’m holding one form of money rather than another form of money, is this one more safe than another?’
“So the regulation is going to have to make sure – and the Financial Policy Committee of the Bank of England made this really clear – that if you issue these new forms of money, the users have to have the same level of confidence and security that they have in the money that circulates in this country at the moment, either Bank of England cash or commercial bank money in the form of bank accounts.
“It’s really crucial that people trust the money they use – we’ve seen from history that when confidence in money breaks down, for whatever reason, the social cost is enormous.”
All of which explains that, while most analysts assume the Bank will ultimately launch its own digital currency, it is taking its time to assess what the impact may be.
It is also clearly giving much thought to how it explains to households and businesses why such a move may be necessary.
The US government has shut down for the first time in almost seven years after last-ditch Senate votes on funding plans fell short.
Hundreds of thousands of federal workers deemed not essential for protecting people or property – such as law enforcement personnel – could be furloughed or laid off after the shutdown began at midnight (5am UK time).
Critical services, including social security payments and the postal service, will keep operating but may suffer from worker shortages, while national parks and museums could be among the sectors that close completely.
Explained: What is a shutdown and who does it impact?
It comes after rival Democrats and Republicans refused to budge in their stand-off over healthcare spending.
A Democrat-led proposal to keep the government funded went down by 53 votes to 47 in the Senate, before the Republicans’ one notched up 55 in favour – five short of the threshold needed to avert a shutdown.
Unlike legislation, a simple majority isn’t enough to pass a government funding bill.
Following the votes in Washington DC on Tuesday night, the White House’s budget office confirmed the shutdown would happen and said affected agencies “should now execute their plans”.
It blamed the Democrats, describing their position as “untenable”. The opposition party wants to reverse cuts to the government’s health insurance programme, Medicaid, which were passed earlier this summer.
Senate majority leader John Thune, a Republican, accused the Democrats of taking federal workers “hostage”.
His Democrat counterpart, Senate minority leader Chuck Schumer, said the Republicans’ funding package “does absolutely nothing to solve the biggest health care crisis in America”.
Republican senators blamed the Democrats for not keeping the government open. Pic: Reuters
Trump threatens layoffs
President Donald Trump was defiant ahead of the votes, and warned he could make “irreversible” cuts “that are bad” for the Democrats if the shutdown went ahead.
He threatened to cut “vast numbers of people out” and “programmes that they (the Democrats) like”.
“We’ll be laying off a lot of people,” he told reporters in the Oval Office on Tuesday.
Tens of thousands of government employees have already been laid off this year, driven by the “DOGE” initiative spearheaded by Elon Musk upon Mr Trump’s return to the White House.
Donald Trump spoke in the Oval Office ahead of the shutdown. Pic: Reuters
The last shutdown was in Mr Trump’s first term, from December 2018 to January 2019, when he demanded money for his US-Mexico border wall. At 35 days, it was the longest on record.
Mr Thune has expressed hope the latest shutdown will come to a much quicker conclusion, telling reporters: “We can reopen tomorrow – all it takes is a handful of Democrats to join Republicans to pass the clean, nonpartisan funding bill that’s in front of us.”
Before this week, the government had shut down 15 times since 1981. Most only last a few days.
The Senate will hold further votes on the Republican and Democrat stopgap funding bills on Wednesday. The former would fund the government through to 21 November.
What happens now?
Immigration enforcement, air-traffic control, military operations, social security and law enforcement are among the services that will not be brought to a halt.
However, should employees miss out on payslips as a result of a prolonged shutdown, they could be impacted by staffing shortages. For example, delays at airports.
Cultural institutions deemed non-essential, like national parks and museums, will be more directly impacted from the very beginning, with large cuts to the workforce.
The popular Smithsonian, for example, has said it only has enough funding to stay open for a week.
The energy price cap is on course to remain steady through this winter but may jump in six months’ time, according to a respected industry forecast.
Ahead of the 2% rise in the default tariff, which is imposed from Wednesday until the end of December, Cornwall Insight said it was currently predicting that the latest increase would be eradicated for the January-March quarter.
It saw a £30 drop to average annual bills at the start of 2026 despite, the specialist said, the expected addition of a £10 per year levy to support the next generation of new nuclear power stations.
Money latest: House thinner than a bus on sale for £1.1m
Cornwall Insight warned that further government-imposed policy costs could add £100 more a year to bills from April, building on higher charges in place to pay for the green energy future and help for households through the expanded warm home discount.
Its prediction, which is subject to wholesale market movements and regulatory consultations on how to apply such charges to bills, would see the cap hit £1,855 from the October-December average £1,755.
Policy costs to assist the battle against climate change are playing an increasing role in determining the level of the price cap.
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Why is the energy price cap rising?
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There are 34 million households, including those on pre-payment meters and other standard variable arrangements, on the energy price cap.
There are a further 20 million unaffected by the price cap shift as they are on fixed rate deals.
They are only exposed to changes in raw energy prices and new policy costs when their term ends.
Wholesale prices – volatile since Russia’s invasion of Ukraine back in February 2022 – have been the main driver of rising bills since the end of the COVID pandemic.
But they are making little contribution to October’s increase as gas prices have remained stable recently due to weaker demand in the global economy and higher flows.
Much, however, depends on a lack of global shocks. The government wants to remove that volatility from our bills through a focus away from gas towards wind and new nuclear, including through modular reactors.
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Energy boss makes case for nuclear future
The problem for household bills in the interim is that it means even higher charges to help pay for the new infrastructure to support that shift in electricity provision.
Minister for energy consumers, Martin McCluskey, said: “Wholesale gas costs remain 75% above their levels before Russia invaded Ukraine. The more renewables on the system, the cheaper the wholesale price of electricity, which is why the only answer for Britain is this government’s mission to get us off the rollercoaster of fossil fuel prices and onto clean, homegrown power we control.”
He said of efforts to support struggling households: “We are taking urgent action to support vulnerable families this winter, expanding the £150 Warm Home Discount to more than six million families, which helps one in five households with their energy bills.
“In the coming weeks, we will be announcing details of the biggest home upgrade programme in British history to improve up to five million homes, making them cheaper and cleaner to run.”
Recent figures by Ofgem showed a record sum for household energy debt.
The regulator revealed a £4.4bn total during the second quarter of the year – up by £750m on the same period in 2024.
The government has said it is working with Ofgem to find solutions. Ideas include the possibility of a debt relief scheme.
Will Owen, energy expert at Uswitch.com, said of the Cornwall Insight predictions: “The predicted rise is driven by the increasing costs of making our energy grid fit for the future, and these charges are being passed on to bill-payers.
“If you’re on a standard variable tariff, you can beat these expected rises and save on bills by switching to a well-priced fixed deal now.
“There are currently 26 fixed deals priced below the October price cap, with savings of around £234 for the average household.”
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