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 Ineos billionaire Sir Jim Ratcliffe remains the leading candidate to buy Manchester United Football Club despite an inconclusive board meeting held late last week.
Sky News understands that directors of the Premier League club’s holding company met on Thursday to discuss the progress of its £5bn-plus auction.
Controlled by members of the Glazer family but also comprising a number of independent directors, the board was updated on the sale process by Raine, the merchant bank advising Manchester United.
A source close to the auction said the directors did not opt to enter into exclusive negotiations with either Ineos Sports or its principal rival, the Qatari businessman Sheikh Jassim bin Hamad al Thani.
Sir Jim is proposing to buy a majority stake in the Red Devils which would leave two of the Glazers involved, while Sheikh Jassim wants to buy the club outright.
The source said that Ineos remained the “leading” bidder despite a further, improved offer from the Nine Two Foundation – Sheikh Jassim’s bid vehicle – earlier this month.
Nevertheless, a further proposal remains possible, with a signed deal with either bidder said to be unlikely prior to United’s FA Cup Final against local rivals Manchester City next weekend.
Sir Jim’s takeover proposal includes ‘put and call’ arrangements that would allow him to buy the Glazers’ remaining shares after three years.
Ineos’s bid is said to value the whole of United at somewhere between £5bn and £5.5bn.
The Glazers have owned Manchester United since buying it for just under £800m in 2005 – an 18-year tenure marked by protests and a conspicuous dearth of trophies since the retirement of Sir Alex Ferguson, its former manager.
The Red Devils did win their first trophy for six years by beating Newcastle United in this season’s Carabao Cup Final.
In addition to the two proposals which would trigger a change of control, the Glazers have also received at least four credible offers for minority stakes or financing investment in the club.
These include an offer from the giant American financial investor Carlyle, Elliott Management, the American hedge fund which until recently owned AC Milan, and Sixth Street, which recently bought a 25% stake in the long-term La Liga broadcasting rights to FC Barcelona.
These investors’ proposals would provide capital to allow United to revamp the ageing infrastructure of its Old Trafford home and Carrington training ground.
Sky News exclusively revealed last November the Glazer family’s plan to explore a strategic review of the club its members have controlled since 2005, kicking off a six-month battle to buy it.
At a valuation of £5bn or more – which is below the Glazers’ rumoured asking price – a sale of Manchester United would become the biggest sports club deal in history.
Part of the justification for such a valuation resides in potential future control of the club’s lucrative broadcast rights, according to bankers, alongside a belief that arguably the world’s most famous sports brand can be commercially exploited more effectively.
United’s New York-listed shares have gyrated wildly during the process amid mixed views about whether a sale of the club is likely.
On Friday, they closed down at $18.97, giving the club a market valuation of just under $3.1bn.
Fury at its participation in the ill-fated European Super League crystallised supporters’ desire for new owners to replace the Glazers, although any sale to state-affiliated Middle Eastern investors would – like Newcastle United’s Saudi-led takeover – not be without controversy.
Confirming the launch of the strategic review in November, Avram and Joel Glazer said: “The strength of Manchester United rests on the passion and loyalty of our global community of 1.1bn fans and followers.
“We will evaluate all options to ensure that we best serve our fans and that Manchester United maximizes the significant growth opportunities available to the club today and in the future.”
The Glazers listed a minority stake in the company in New York in 2012 but retained overwhelming control through a dual-class share structure which means they hold almost all voting rights.
A Manchester United spokesman declined to confirm that a board meeting had taken place.
Jeremy Hunt has told Sky News he is comfortable with Britain being plunged into recession if that’s what it takes to bring down inflation.
The chancellor said that he would fully support the Bank of England raising interest rates higher, potentially towards 5.5%, as it battled higher-than-expected prices.
Asked by Sky News whether he was “comfortable with the Bank of England doing whatever it takes to bring down inflation, even if that potentially would precipitate a recession”, he said: “Yes, because in the end, inflation is a source of instability.
“And if we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take.
“I have to do something else, which is to make sure the decisions that I take as chancellor, very difficult decisions, to balance the books so that the markets, the world can see that Britain is a country that pays its way – all these things mean that monetary policy at the Bank of England (and) fiscal policy by the chancellor are aligned.”
The comments came after market expectations for the eventual peak of UK interest rates leapt dramatically, following higher-than-expected CPI inflation data this week.
While the anticipated peak for UK rates was a little above 4.75% last week, it lurched higher, to 5.5%, following Wednesday’s statistics. Save for the gyrations after the mini-budget last autumn, it was the biggest shift in interest rate expectations since 2008.
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Prime Minister Rishi Sunak pledged in January that he would halve inflation this year, which in practice means bringing it down to just above 5% by the end of 2023. The Bank of England’s forecasts earlier this week suggested he would narrowly succeed.
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However, since the latest inflation data is significantly higher than the Bank’s forecast trajectory, the pledge may be missed.
But the prime minister also pledged to grow the economy. And while the International Monetary Fund said this week that the UK would avoid recession, economists believe it’s now plausible, given those higher interest rate expectations, that Britain instead sees gross domestic product contract for two quarters – the technical definition of a recession.
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Mr Hunt added: “When the prime minister announced that it was his objective to halve inflation in January, there were some people who derided that, they said: ‘well it’s automatic, inflation is going to come down anyhow’.
“There’s nothing automatic about bringing down inflation, it is a big task, but we must deliver it and we will.
“It is not a trade-off between tackling inflation and recession. In the end, the only path to sustainable growth is to bring down inflation.”
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