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.
KitKats, Gaviscon, toothpaste, and even Freddo have all fallen victim to shrinkflation, consumer group Which? has found.
As families struggle with the cost of a trip to the supermarket, a survey of shoppers revealed how many products are getting smaller – while others are being downgraded with cheaper ingredients.
Among the examples are:
• Aquafresh complete care original toothpaste – from £1.30 for 100ml to £2 for 75ml at Tesco, Sainsbury’s and Ocado
• Gaviscon heartburn and indigestion liquid – from £14 for 600ml to £14 for 500ml at Sainsbury’s
• Sainsbury’s Scottish oats – from £1.25 for 1kg to £2.10 for 500g
• KitKat two-finger multipacks – from £3.60 for 21 bars to £5.50 for 18 bars at Ocado
• Quality Street tubs – from £6 for 600g to £7 for 550g at Morrisons
• Freddo multipacks – from £1.40 for five bars to £1.40 for four bars at Morrisons, Ocado and Tesco
Which? also received reports of popular treats missing key ingredients, as manufacturers seek to cut costs.
The amount of cocoa butter in white KitKats has fallen below 20%, meaning they can no longer actually be sold as white chocolate.
It comes after Penguin and Club bars lost their legal status as a chocolate biscuit, as they now contain more palm oil and shea oil than cocoa – as reported in the Sky News Money blog.
Which? retail editor Reena Sewraz called on supermarkets to be “more upfront” about price changes to help households “already under immense financial pressure” get better value.
While keeping track of the size and weight of products can be tricky, Which? has two top tips for detecting shrinkflation.
The first is to be wary of familiar products labelled as “new” – because the only thing that’s new may end up being the smaller size.
Meanwhile, the second is to pay attention to how much an item costs per 100g or 100ml, as this can be an easy way of finding out when prices change.
What have the companies said?
A spokeswoman for Mondelez International, which makes Cadbury products, said any change to product sizes are a “last resort”, but it’s facing “significantly higher input costs across our supply chain” – including for energy.
A Nestle spokesman said it was seeing “significant increases in the cost of coffee”, and some “adjustments” were occasionally needed “to maintain the same high quality and delicious taste that consumers know and love”.
“Retail pricing is always at the discretion of individual retailers,” they added.
A spokesman for the Food and Drink Federation also pointed to government policy, notably national insurance increases for employers and a new packaging tax.
Please use Chrome browser for a more accessible video player
Is inflation reaching its peak?
Fresh food prices on the rise
The Which? report comes as latest figures showed fresh food costs 4.3% more than it did a year ago.
The increase in October, reported by the British Retail Consortium (BRC) and market researchers NIQ, was up on the 4.1% year-on-year rise in September.
Overall food inflation was down slightly, though, to 3.7% from last month’s 4.2%.
Read more from Sky News:
Surprise move for Costa Coffee
Start-ups issue warning to Reeves
There has also been a slowdown in overall shop price inflation, which the BRC said was down to “fierce competition among retailers” ahead of Black Friday sales.
The annual shopping extravaganza will this year arrive in the same week as the chancellor’s budget, which is set for Wednesday 26 November.
BRC chief executive Helen Dickinson called on Rachel Reeves to help “relieve some pressures” keeping prices high, with the national insurance rise in last year’s budget having “directly contributed to rising inflation”.
“Adding further taxes on retail businesses would inevitably keep inflation higher for longer,” Ms Dickinson warned.
Business
Petrofac administration not a great start to the week for Ed Miliband though relief could come
More than 2,000 Scotland-based jobs are at risk as oil and energy services group Petrofac has applied for administration.
The group’s operations will continue to trade, and options for restructuring of the company and a possible merger or acquisition are being actively explored with its key creditors, the company said on Monday.
People close to the company say they are hopeful a buyer can be found swiftly for its North Sea operations, with one suggesting that it could even happen in the coming days.
Money blog: ‘We protect the UK, our salaries can be limitless’
Administrators will work alongside company management to “preserve value, operational capability and ongoing delivery”, its announcement read.
News of a possible insolvency announcement was first reported by Sky News.
Energy Secretary Ed Miliband and other ministers have been briefed on the situation.
An advisory firm, Kroll, had been engaged by the Department for Energy Security and Net Zero to work with ministers and officials on the unfolding crisis for the company.
What is Petrofac?
Petrofac employs about 7,300 people globally, according to a recent stock exchange filing.
It designs, constructs and operates offshore equipment for energy companies.
The company has been valued at more than £6bn but has been struggling with debt.
It also faced a Serious Fraud Office investigation, which resulted in a 2021 conviction for failing to prevent bribery, and the payment of millions of pounds in penalties.
Please use Chrome browser for a more accessible video player
Ed Miliband ‘welcomes’ challenge from Jeremy Clarkson for seat in parliament
Founded in 1981 in Texas, the business has been in talks about a far-reaching financial restructuring for more than a year.
A formal restructuring plan was sanctioned by the High Court in May this year with the aim of writing off much of its debt and injecting new cash into the business.
This was subsequently overturned, prompting talks with creditors about a revised agreement.
-
Sports2 years agoStory injured on diving stop, exits Red Sox game
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports3 years agoButton battles heat exhaustion in NASCAR debut
-
Sports3 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment1 year agoHere are the best electric bikes you can buy at every price level in October 2024