Bank of England seeks views on ‘Britcoin’ impact

Published

3 years ago

June 7, 2021

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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.

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.

“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.

“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.

Business

Russian oil still seeping into UK – the reasons why sanctions are not working

Published

2 hours ago

May 8, 2024

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Russian oil still seeping into UK - the reasons why sanctions are not working

The Russian state has been making more money from its oil and gas industry in the past three months than in any comparable period since the early days of the Ukraine invasion, it has emerged.

The figures underline that despite the imposition of various sanctions on fossil fuel exports from Russia since February 2022, the country is still making significant sums from them. This is in part because rather than preventing Russia from exporting oil, gas and coal, they have simply changed the geography of the global fossil fuels business.

In the three months to April, Russia made a monthly average of 1.2 trillion rubles (£10.4bn) from its oil and gas revenues, according to Sky analysis of figures collected by Bloomberg.

That is the highest three-month average since April 2022.

It comes amid elevated oil prices and concerns that sanctions on Russia are failing to prevent the country earning money and waging war on Ukraine.

Before the invasion of Ukraine, the world’s biggest recipients of Russian oil experts were the European Union, the US and China. Since then, the UK, US and EU have banned the import of crude oil or refined products from Russia.

G7 nations have also introduced a price cap which aims to prevent any Western companies – from shipping firms to insurers – from assisting with any Russian oil exports for anything more than $60 a barrel.

However, Russia continues to export just as much oil as it did before the invasion of Ukraine and the imposition of the price cap.

Sanctions experts say the price cap has been a qualified success, since it has slightly reduced the potential revenues enjoyed by the Kremlin, if it intends to ship that oil via most commercial ships. In response, Russia is reported to have built up a so-called “dark fleet” of ships carrying Russian oil without obeying those sanctions.

The top three destinations for Russian oil are now China, India and Turkey. The UK now imports considerably more oil and oil products from the Middle East than before, making it more reliant on the Gulf.

However, Russian fossil fuel molecules are still being exported to the UK, albeit indirectly, because the sanctions imposed by western nations do not cover oil products refined elsewhere.

The upshot is that Indian refineries are importing a record amount of oil from Russia, and Britain is importing a record amount of oil from Indian refineries – up by 176% since the invasion of Ukraine.

At least some Russian oil still powers the cars in Britain and the planes refilling in British airports, but because it is impossible to trace the fossil fuels molecule by molecule, it is hard to know precisely how much.

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‘No indication of malicious activity’ as e-gates back working at UK airports after travel chaos

Published

2 hours ago

May 8, 2024

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'No indication of malicious activity' as e-gates back working at UK airports after travel chaos

A “nationwide issue” with e-gates at airports has been resolved after causing travel chaos across the country, the Home Office has said.

It said the system was back up and running and there was “no indication of malicious cyber activity”.

Social media images and footage showed long queues at the passport scanning gates at several airports overnight.

Passengers also reported being held on planes after they landed, while others said the delays caused them to miss trains.

Heathrow, Gatwick and Stansted airports were affected, as well as Manchester, Bristol and Southampton, along with Edinburgh, Glasgow and Aberdeen.

One passenger at Stansted Airport told Sky News they had missed several coaches to central London because of the issues, and only cleared the airport after nearly three hours in line.

“Not much info given. No water handed out. Babies crying,” they said.

Another at Luton Airport said it took around 80 minutes from leaving their flight from Amsterdam to get through border control.

One traveller said they were held on their plane at Stansted for around an hour and a half after landing.

“We weren’t told much other than the e-gates were down but had no idea how long it would take,” they told Sky News.

“After that not much was said other than we couldn’t disembark till the other five planes ahead of us did.”

‘No indication of malicious cyber activity’

A Home Office spokesperson said: “E-gates at UK airports came back online shortly after midnight.

“As soon as engineers detected a wider system network issue at 7.44pm last night, a large-scale contingency response was activated within six minutes.

“At no point was border security compromised, and there is no indication of malicious cyber activity.”

E-gate system crashed last year

The disruption came after Border Force workers staged a four-day strike at Heathrow Airport in a dispute over working conditions last week.

The union said workers were protesting against plans to introduce new rosters, which they claim will see around 250 of them forced out of their jobs at passport control.

The UK’s e-gates system also crashed in May last year, causing long queues and several hours of delays for passengers.

At the time travel expert Paul Charles told Sky News underinvestment in the UK’s transport infrastructure had left these systems “hanging by a thread”.

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Renewable power reaches record 30% of global electricity

Published

2 hours ago

May 8, 2024

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Renewable power reaches record 30% of global electricity

Experts have hailed a “critical turning point” as renewable power generated a record-breaking 30% of the world’s electricity last year, new data has found.

It raises hopes that the peaking of global greenhouse gas emissions is on the horizon.

But there are concerns many countries are being held up in their switch to clean power because they cannot access the cash needed to fund it.

Last year’s renewable power “milestone” was driven by yet another booming year for wind and especially solar.

China, Brazil and the Netherlands led the way in terms of fast roll-outs, thinktank Ember said in its annual Global Electricity Review.

China alone accounted for 51% of new solar generation and 60% of new wind, even as it continued to build vast amounts of new coal power too.

Christiana Figueres, former United Nations climate chief, called 2023 a “critical turning point”.

She said “outdated” fossil fuels now can’t compete with the “exponential innovations and declining cost curves in renewable energy and storage”.

“All of humanity and the planet upon which we depend will be better off for it,” she added.

In the last two decades, solar and wind have defied expectations and grown far faster than expected, surging from just 0.2% of global power generation in 2000 to 13.4% in 2023.

Dave Jones, Ember’s head of global insights, said the huge growth was due to “matured” policies and technologies and a plummet in costs.

The cost of solar power halved last year despite a surge in demand, thanks to an explosion in manufacturing capacity.

Meanwhile problems that had held up wind power – such as inflationary costs – began to resolve, unlocking more projects.

A ‘genuinely ambitious’ renewables target

At the COP28 climate summit in Dubai last year leaders pledged to triple renewable power capacity by 2030.

The “genuinely ambitious” target shows leaders are backing renewables, which are the “main tools that we have in the box today to deliver the big emissions reductions we need”, rather than riskier technology, such as that to remove carbon dioxide from the atmosphere, Mr Jones said.

Ember suggests the global burning of fossil fuels in the power sector probably peaked in 2023 and will start to fall this year, along with the pollution and emissions they bring.

As the power sector accounts for the largest share of global emissions, that means global emissions could start to fall soon too.

That is good news for curbing climate change, although scientists have repeatedly warned that emissions are not falling fast enough to limit global warming to agreed safer levels.

Mr Jones said the pace of emissions falls “depends on how fast the renewables revolution continues”.

Joab Okanda, a senior adviser for Christian Aid, based in Kenya, said the roll-out would be “so much faster with the right investment” in African nations, which often face much higher borrowing costs than other countries.

Hanan Morsy, deputy executive secretary and chief economist at the UN’s Economic Commission for Africa, said the continent holds “big potential in renewable energy”.

“Yet a dismally small share of less than 2% of global renewable energy investments are made on the continent. The continent can’t develop further without access to energy.”

He called for financial reforms to bring in affordable and new types of funding.

Financing the clean transition in developing nations, which have typically contributed the least to climate change, will be a key issue at this year’s UN climate summit, COP29 in Azerbaijan.