Bank of England seeks views on ‘Britcoin’ impact

Published

2 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

Struggling CBI to impose 5% fee increase on members

Published

12 hours ago

December 1, 2023

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Struggling CBI to impose 5% fee increase on members

The CBI is urging members to swallow a further rise in fees even as the lobby group battles to regain its former standing among political and business leaders.

Sky News understands that CBI members will be asked at its annual meeting next week to approve a 5% rise in their subscription costs.

It comes less than three months after the organisation – which styles itself as ‘the voice of British business’ – won a lifeline from banks which agreed to provide sufficient funding to avert collapse in the aftermath of a sexual misconduct scandal.

The CBI has been slowly rebuilding its reputation, staging a slimmed-down version of its annual conference last month which featured an address by Jeremy Hunt, the chancellor.

In a circular to members, it said the fee hike was in line with previous years.

However, the group has been slashing costs by axeing a chunk of its workforce and closing most of its overseas offices in an attempt to restore its finances to a more stable footing.

The crisis which erupted earlier this year, which followed several rape allegations against former employees, triggered an exodus of corporate members including Aviva and John Lewis Partnership.

Tony Danker, its director-general – who was accused of inappropriate behaviour but had nothing to do with the more serious allegations – stepped down in April weeks after being suspended.

The CBI briefly entertained talks about a merger with Make UK, the manufacturers’ body, but these have now been curtailed.

The business group declined to comment on Friday, although an insider said it was “standard operating practice…to adjust prices for inflation”.

Business

Frazer to prohibit removal of key Telegraph staff during probe

Published

15 hours ago

December 1, 2023

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Frazer to prohibit removal of key Telegraph staff during probe

The government is to prohibit the removal or transfer of key Daily Telegraph journalists during a public interest probe into the newspaper’s prospective takeover by a state-backed Abu Dhabi investor.

Sky News has learnt that Lucy Frazer, the culture secretary, is preparing to make an interim enforcement order (IEO) that will impose a set of restrictions on the Daily and Sunday Telegraph’s current owners.

City sources said the IEO – which has been notified to the Barclay family – was likely to be made public later on Friday.

Both the family and RedBird IMI are said to have agreed to the restrictions.

It will come within hours of the government issuing a Public Interest Intervention Notice (PIIN) that will subject the change of control at the broadsheet titles to a probe by Ofcom and the Competition and Markets Authority.

The IEO will prevent the Barclay family or RedBird IMI from expediting a further change of ownership, removing directors or transferring top editorial staff without the secretary of state’s approval, according to one insider.

Whitehall officials had been considering using a separate order to ensure the newspapers’ independence during the PIIN, but sources said the IEO would effectively achieve the same objectives.

News of the IEO may assuage concerns raised by a growing number of Conservative parliamentarians about the Barclay family, which has owned the Telegraph since 2004, or RedBird IMI attempting to exert renewed influence on the newspapers.

Ms Frazer is seeking the regulators’ responses before the end of January, after which the takeover of the broadsheet newspapers could be approved or blocked.

Dozens of Conservative MPs, including the former party leader Sir Iain Duncan Smith, have called for the deal to face further investigation under national security laws.

The repayment of a £1.16bn debt to Lloyds is, however, unaffected by the PIIN.

Earlier on Friday, Sky News revealed that shareholders in Lloyds Banking Group could reap a windfall worth more than £500m early next year following the deal to repay the loans.

Lloyds is expected to receive the funds early next week from the Barclays following an agreement between the family and RedBird IMI, an Abu Dhabi-based vehicle which is majority-funded by members of the Gulf state’s royal family.

RedBird IMI plans to convert a £600m chunk of the loan into shares in the Telegraph newspapers and The Spectator magazine if it gains regulatory approval for the deal.

RedBird IMI, which is fronted by the former CNN president Jeff Zucker and funded in large part by Sheikh Mansour bin Zayed Al Nahyan, the owner of Manchester City, has pledged to preserve the Telegraph’s editorial independence.

A trio of independent directors, led by the Openreach chairman Mike McTighe, will remain in place while the public interest inquiry is carried out.

RedBird IMI’s move to fund the loan redemption has circumvented an auction of the Telegraph titles which has drawn interest from a range of bidders.

Prospective bidders led by the hedge fund billionaire and GB News shareholder Sir Paul Marshall had been agitating for the launch of a PIIN.

The Telegraph auction, which has also drawn interest from the Daily Mail proprietor Lord Rothermere and National World, a London-listed local newspaper publisher, is now effectively over.

Until June, the newspapers were chaired by Aidan Barclay – the nephew of Sir Frederick Barclay, the octogenarian who along with his late twin Sir David engineered the takeover of the Telegraph in 2004.

Lloyds had been locked in talks with the Barclays for years about refinancing loans made to them by HBOS prior to that bank’s rescue during the 2008 banking crisis.

The DCMS and a spokesman for the Barclay family declined to comment.

Business

Lloyds shareholders could reap £500m bonanza from Telegraph deal

Published

18 hours ago

December 1, 2023

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Lloyds shareholders could reap £500m bonanza from Telegraph deal

Shareholders in Lloyds Banking Group could reap a windfall worth more than £500m early next year following a deal that will see it repaid loans in full by the owners of The Daily Telegraph.

Sky News has learnt Britain’s biggest high street lender will be in a position to write back more than £500m on the value of a £700m loan extended years ago to the Barclay family.

One banking analyst said the writeback, the precise size of which will be disclosed in Lloyds’ annual results next February, would pave the way for Lloyds to return a significant amount of capital to investors, potentially through a special dividend or share buyback.

Lloyds is expected to receive a total of £1.16bn early next week from the Barclays following an agreement between the family and RedBird IMI, an Abu Dhabi-based vehicle which is majority-funded by members of the Gulf state’s royal family.

RedBird IMI plans to convert a £600m chunk of the loan into shares in the Telegraph newspapers and The Spectator magazine if it gains regulatory approval for the deal.

On Thursday, Lucy Frazer, the culture secretary, confirmed a Sky News report that she was issuing a Public Interest Intervention Notice (PIIN) that will subject the transaction to scrutiny by Ofcom and the Competition and Markets Authority.

Ms Frazer is seeking the regulators’ responses before the end of January, after which the takeover of the broadsheet newspapers could be approved or blocked.

Dozens of Conservative MPs, including the former party leader Sir Iain Duncan Smith, have called for the deal to face further investigation under national security laws.

The debt repayment to Lloyds is, however, unaffected by the PIIN.

The bank has already given notice to the government of the debt repayment, with the funds expected to be transferred early next week.

The outcome will be a stunning one for Lloyds and its chief executive Charlie Nunn, who had rejected a series of partial repayment offers from the family lodged after the Telegraph’s holding company was placed into receivership during the summer.

In addition to the £700m value of the principal loan, the Barclays are paying more than £400m in interest which has accrued over many years.

“The writeback is pure profit for Lloyds and will flow straight to the bank’s bottom line,” the analyst said.

One person close to the situation said that Lloyds had written down the majority, but not all, of the loan’s original £700m value.

A writeback of over £500m is therefore expected to contribute a meaningful proportion of the bank’s 2023 annual profit.

Analysts say the company is already generating significant sums of excess capital and that the absence of a substantial acquisition would therefore give Lloyds’ board the freedom to return the Telegraph loan windfall to shareholders.

The repayment of the Lloyds loan will trigger the dissolution of a court hearing in the British Virgin Islands to liquidate a Barclay company tied to the newspaper’s ownership, and temporarily put the family back in control of their shares in the broadsheet title.

However, the Barclays will be subject to restrictions imposed by the government which are expected to be outlined shortly.

A trio of independent directors, led by the Openreach chairman Mike McTighe, will remain in place while a public interest inquiry is carried out.

RedBird IMI’s move to fund the loan redemption has circumvented an auction of the Telegraph titles which has drawn interest from a range of bidders.#

The battle for control of The Daily Telegraph has rapidly turned into a complex commercial and political row which has raised tensions between the DCMS and the Foreign Office over Britain’s receptiveness to foreign investment.

Prospective bidders led by the hedge fund billionaire and GB News shareholder Sir Paul Marshall had been agitating for the launch of a PIIN.

Sky News revealed recently that Ed Richards, the former boss of media regulator Ofcom, is acting as a lobbyist for RedBird IMI through Flint Global, which was co-founded by Sir Simon Fraser, former Foreign Office permanent secretary.

The Telegraph auction, which has also drawn interest from the Daily Mail proprietor Lord Rothermere and National World, a London-listed local newspaper publisher, has now been paused until next month.

The original bid deadline had been shifted from 28 November to 10 December to take account of the possibility that Lloyds might be repaid in full by the Barclay family by December 1.

That bid deadline is now expected to be cancelled.

Lloyds had been locked in talks with the Barclays for years about refinancing loans made to them by HBOS prior to that bank’s rescue during the 2008 banking crisis.

A Lloyds spokesman indicated that any capital distributions would be evaluated in the usual way by its board ahead of the bank’s annual results, but declined to comment further.