Yuan way or another, the British Pound seeks a digital future
The following is a guest editorial courtesy of Andrew Saks, Head of Research and Analysis at ETX Capital.
The Great British public are members of a calm and tolerant society.
Hundreds of years of stability and prosperity have provided a gradually improving backdrop for an equally sophisticated industrial and economic evolution that has led the world to where it is today. Victorian England was the crucible of industrial modernization to the point that almost every modern device that has been central to everyday life having been invented in Britain over 100 years ago.
This industrial genius, plus the position of Britain as the world’s seafaring power placed global dominance of the financial markets in the hands of the City of London for hundreds of years.
For this reason, the world looks to London for every aspect of trade execution in the FX markets, the Tier 1 interbank dealers of Canary Wharf handling over 60% of global order flow.
Not only do most of the world’s FX transactions go through London’s vast and complex financial markets ecosystem, but it is the most trusted and respected worldwide.
Whilst this global dominance is entirely London-centric, residents across the United Kingdom are safe in the knowledge that a large part of the country’s wealth and security is derived from the financial sector which employs only 0.0009% of Europe’s workforce yet produces over 16% of tax receipts for Britain and all of the European Union member states combined.
What, in that case, would be the general reaction should the British government – or rather more specifically Chancellor of the Exchequer Rishi Sunak – band together with the Bank of England in advocating the launch of a digital version of the British Pound, the world’s most valuable sovereign currency?
As I mentioned earlier today as part of my market analysis, China’s central bank, the People’s Bank of China, has been developing a digital version of the Yuan which would assist the government in its quest to ensure strict capital controls as well as monitor the behavior of citizens in order that they do not transfer large amounts of cash abroad – something that the Chinese Yuan in physical form has been used for over the past 15 years for investing in commercial and bulk real estate in Canada, Australia, South Africa, Cyprus and the UK, and to coerce people into toeing the line for fear of being disconnected from their e-wallets by the state.
Britain, just as in China, outlawed peer-to-peer cryptocurrency for retail customers, a measure taken by the Financial Conduct Authority (FCA) late last year. Here we are, just a few months later, and the former CEO of the FCA is a year into his position as Governor of the Bank of England, which is now set to issue a digital Pound.
Yes, Britain is a very advanced nation. It is not only a financial leader on the world stage, but it is also a highly technological and ultra-modern society, therefore very few people use cash in its physical form these days, however they are simply transacting physical cash by using their payment device.
There is a huge difference between this and actual digital currency.
This morning, as the mainstream news covered this in a very rudimentary fashion, the analytical minds of the public saw through the cracks and made their points clear.
“CBDCs (Central Bank Digital Currencies) are all about central banks wanting more power. They are the regulators and will now compete with the commercial banks that they regulate. The result will be ultimate control if population. If you do not do what you are told, they will simply turn you off” said one observer.
“Britcoin, or whatever you want to call a digital currency backed by a fiat currency will not be a cryptocurrency and hence will not perform like one. Anything backed by fiat will lose value each and every year just like the pound in your pocket does. Buy the real thing Bitcoin, limited supply increasing demand price will rise” was the opinion of another critic.
Whilst many see centrally issued digital currency as a means of controlling the populace by increasingly totalitarian governments, some see it as quite the opposite. “When you think about it, Bitcoin is a fascinating lesson in how currencies actually work. Normal ‘fiat’ currencies have value because we believe they do. Why? Because governments and central banks tell us they do. Bitcoin is sort of similar. We believe it has value. But, unlike with ‘fiat’ currency, no one told us it does. So it poses an interesting question – do we (as currency users) actually need central banks?” was one question raised today.
“In the near future you will have a choice – a central bank controlled digital currency backed by a fiat currency with unlimited supply or you could own a cryptocurrency with limited supply. Hmm, no brainer” opined another.
One thing is for sure. If this was the plan of a less important central bank, and if it did not echo the exact same methodology as the illiberal Chinese government, it would be less of a concern, however in this guise it is a recipe for speculation, and speculation drives volatility.