The pros and cons of the digital pound AKA ‘Britcoin’

We asked accountants what the impact of a digital currency separate from the Bank of England might be.

The government and the Bank of England are currently consulting on the possibility of a new form of currency which would sit alongside, rather than replace, banknotes and coins. Digital currency, such as the digital pound, would be used by both households and businesses for everyday payments. But unlike the private sector cryptocurrency, it would be officially issued by the Bank of England and therefore subject to strict regulation including privacy and data protection.

According to the consultation paper released in early February, spending has become ‘more digital’. Stats from UK Finance and Bank Calculations reveal that cash transactions for goods and services are in decline. Between 2012 and 2021, cash transactions fell from 55 per cent to 15 per cent.

The digital pound model would work as follows:

• A public-private partnership, with the private sector providing services such as digital wallets to support the new currency.
• Issued by central platform operated by the Bank of England.
• Hold the same value as cash.
• Accessible to UK and non-UK residents.
• Be used by both households and businesses.
• Seamlessly exchangeable with other forms of money.
• Issued via smartphones and bank cards.

So what do accountants think? What benefit might the digital pound bring to businesses and the UK economy? Or conversely, what concerns and challenges might be associated with its introduction?

Digital currency could enable sophisticated digital payment functionality in the future

Neil Parsons, MD, Wolters Kluwer Tax & Accounting UK

The proposed central bank digital currency may not seem to offer much in the way of immediate benefits. But as a digital solution, it is the tip of the iceberg and could provide a foundation from which to access increasingly sophisticated digital payment functionality in the future.

A digital pound may seem superfluous now, but the UK payments system is not immune to financial crises, and when it comes down to moving money quickly, having a wholly digital currency may offer advantages in terms of speed and resilience.

From a tax and accounting point of view, accountants are already seeing the benefits of increased digitisation in terms of compliance and reporting, and digital transactions will mean more trackable data, which can translate into better financial insight across the board. As with any new technology, advisors will have to work to communicate the benefits to their clients, and to ensure they have the technology workflows in place to integrate digital currencies into every facet of cash flow and compliance reporting.

Verdict: Accountants are already seeing the benefits of increased digitization, and digital currency is no different. It could provide a platform to access sophisticated digital payment functionality in the future.

Digital currency comes with concerns around infrastructure, logistics and financial security

Nicola Goldsmith, Head of Private Clients, Haines Watts

There are positives to digital currency. Regulation should make it less volatile than cryptocurrencies, which are decentralised finance.

In an increasingly cashless society, Britcoin would allow different and new ways to pay which do not involve bank accounts, Paypal or similar payment accounts. That in itself should make everything a lot faster – including international transfers.

Plus, in theory, digital currency may help those who are bankless as they will not need to hold the account via a traditional bank account.

But these pros come with cons, or at least uncertainty. Who would provide loans, and would these be regulated? Would the wallet providers need to have the same reserve requirement as a bank? What about security? Cryptocurrency wallets can be hacked, for example, although as with most bank fraud, an individual is more likely to be the victim of a scam.

On an individual level, how might someone open digital currency accounts? How would they move traditional currency into the digital account? How expensive will such accounts be?

Verdict: Digital currency will be less volatile than cryptocurrencies and transactions will, in theory, be much faster than traditional bank accounts. But it comes with more questions than answers on details such as loan providers, regulation and security.

Digital currency could cause more issues for the economy than it would solve

Matt Portt, Director, Portt & Co

The current issue with cryptocurrencies is that they’re generally not government backed so value can, in theory, drop to nil. The Bank of England’s backing would therefore be positive as this would create a secure foundation.

However, I do not feel that the introduction of a digital pound issued by the Bank of England would add anything to our economy. There is currently little demand for digital assets among the small business community – digital assets are viewed as high-risk investments and currently, small businesses do not to have this level of appetite for risk.

Also, digital currency could pose issues around borrowing. If, during economic uncertainty, deposit holders withdraw funds and instead hold digital currency, there could be a lack of liquidity available for the banks to issue and they would have to increase borrowing costs.

In addition, the consultation paper suggests that digital wallets would be held/managed by private companies, who are not banks, and so I imagine there would be a steep learning curve for those organisations in terms of security and anti-money laundering regulations.

Verdict: Digital currency could cause more issues for the economy than it would solve, particularly around regulation, anti-money laundering and liquidity.

Annie Makoff is a freelance journalist and editor.