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.
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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.
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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.
Image: 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.
Image: 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.
Image: 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.
Hiscox, the London-listed insurer, is close to naming a new chairman nearly eight months after the drowning of Jonathan Bloomer on the luxury yacht of technology tycoon Mike Lynch.
Sky News has learnt that Hiscox has narrowed its search to candidates including Richard Berliand, who chairs the interdealer broker TP ICAP.
Insurance insiders said that Mr Berliand was among fewer than a handful of potential successors to Mr Bloomer.
The sinking of the Bayesian off the Sicilian coast last August claimed the lives of Mr Lynch and his daughter, along with five other passengers, including Mr Bloomer.
A former boss of Prudential, Mr Bloomer was a well-liked figure in the City.
He had chaired Hiscox for just a year when he died.
The identities of the other candidates being considered by the company were unclear on Monday.
Asian stock markets have fallen dramatically amid escalating fears of a global trade war – as Donald Trump called his tariffs “medicine” and showed no sign of backing down.
Hong Kong’s Hang Seng index of shares closed down 13.2% – its biggest drop since 1997, while the Shanghai composite index lost 7.3% – the worst fall there since 2020.
Taiwan’s stock market was also hammered, losing nearly 10% on Monday, its biggest one-day drop on record.
Elsewhere, Japan’s Nikkei 225 lost 7.8%, while London’s FTSE 100 was down 4.85% by 9am.
US stock market futures signalled further losses were ahead when trading begins in America later.
At 4am EST, the S&P 500 futures was down 4.93%, the Dow Jones 4.32% and the Nasdaq 5.33%.
Markets are reacting to ongoing uncertainty over the impact of President Trump’s tariffs on goods imported to the US, which he announced last week.
Image: A screen showing the Hang Seng index in central Hong Kong. Pic: Reuters
Speaking on Air Force One on Sunday, Mr Trump said foreign governments would have to pay “a lot of money” to lift his tariffs.
“I don’t want anything to go down. But sometimes you have to take medicine to fix something,” he said.
The US president said world leaders were trying to convince him to lower further tariffs, which are due to take effect this week.
“I spoke to a lot of leaders, European, Asian, from all over the world,” Mr Trump told reporters.
“They’re dying to make a deal. And I said, we’re not going to have deficits with your country.
“We’re not going to do that because to me, a deficit is a loss. We’re going to have surpluses or, at worst, going to be breaking even.”
Mr Trump, who spent much of the weekend playing golf in Florida, posted on his Truth Social platform: “WE WILL WIN. HANG TOUGH, it won’t be easy.”
President Trump believes his policy will make the US richer, forcing companies to relocate more manufacturing to America and creating jobs.
However, his announcement has shocked stock markets, triggered retaliatory levies from China and sparked fears of a global trade war.
Reality hits that trade war no longer just a threat
China’s announcement of its tariff retaliation came late afternoon on Friday local time.
Most Asian markets closed shortly after – and markets in China, Hong Kong and Taiwan were closed for a public holiday – meaning the scale of the hit did not play out until today.
This morning we are getting a sense of the impact. Dramatic falls across all Asian markets clearly signal a realisation a global trade war is no longer just a threat, but a reality here to stay, and a global recession could yet follow.
Up until Friday, China’s response to Donald Trump’s tariffs had been perceived as restrained and designed to avoid escalation, the markets had reacted accordingly.
But that all changed last week when Mr Trump’s new 34% levy on all Chinese goods was matched by China with an identical tax. Both sit on top of previous tariffs levied, meaning many goods now face rates in excess of 50%.
These are numbers that make most trade between the world’s two biggest economies almost impossible and that will have a global impact.
China has clearly decided any forthcoming pain will have to be managed, and not being seen to be cowed and bullied by Mr Trump is being deemed more important.
But the scale of the retaliation will have further spooked the markets as it makes the prospect of negotiation and retreat increasingly unlikely.
Mr Trump added to the atmosphere of intransigence when he told the media on Sunday the trade deficit with China would need to be addressed before any deal could be done. The complete lack of concern from the White House over the weekend will also not have helped.
While smaller economies like Japan, South Korea, Cambodia and Vietnam are all lining up to attempt to negotiate, there are a lot of nations in that queue.
There is a sense none of this will be easily rectified.
US customs agents began collecting Mr Trump’s baseline 10% tariff on Saturday.
Higher “reciprocal” tariffs of between 11% and 50% – depending on the country – are due to kick in on Wednesday.
Investors and world leaders are unsure whether the US tariffs are here to stay or a negotiating tactic to win concessions from other countries.
Richard Flax, chief investment officer at wealth manager Moneyfarm, said: “I guess there was some hope over the weekend that maybe we would see this as part of the start of a negotiation.
“But the messages that we’ve so far seen suggest that the President Trump is comfortable with the market reaction and that he’s going to continue on this course.
Goldman Sachs has raised the odds of a US recession to 45%, joining other investment banks that have also revised their forecasts.
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In the UK, Sir Keir Starmer has promised “bold changes” and said he would relax rules around electric vehicles as British carmakers deal with a new 25% US tariff on vehicles.
The prime minister said “global trade is being transformed” by President Trump’s actions.
KPMG has warned tariffs on UK exports could see GDP growth fall to 0.8% in 2025 and 2026.
The accountancy firm said higher tariffs on specific categories, such as cars, aluminium and steel, would more than offset the exemption on pharmaceutical exports, leaving the effective tariff rate around 12%.
Yael Selfin, chief economist at KPMG UK, said: “Given the economic impact that tariffs would cause, there is a strong incentive to seek a negotiated settlement that diminishes the need for tariffs.
“The UK automotive manufacturing sector is particularly exposed given the complex supply chains of some producers.”
Traders called this morning a complete bloodbath as the UK’s FTSE 100 joined world indexes in turning red as uncertainty over Donald Trump’s tariffs continued to batter stock markets.
The cause is not just the imposition of those tariffs (the largest the US has inflicted since the 1930s) and the very obvious drag this will have on global trade and growth, but also the uncertainty of ‘what next?’.
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Investors cannot work out if the Trump administration is genuinely wedded to tariffs on this scale, on the proviso that they will help re-shore companies and millions of jobs to the United States.
They don’t know if they are permanent or merely part of a negotiating tactic to address trade imbalances, and for America to use its economic heft to strike better deals.
If Mr Trump is open to deals (the first test comes later in a meeting with the Israeli prime minister), markets will calm, even if the midst of uncertainty hasn’t fully cleared.
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17:21
Time to change tactics with Trump?
However, if this is a genuine rewiring of global trade and the end of globalisation as we know it, markets and economies will continue to get battered.
As one Trump supporter, billionaire Bill Ackman – who opposes the tariffs – put it, President Trump has launched a “global economic war against the whole world” that will usher in an “economic nuclear winter.”