Britcoin

In News: British authorities are exploring the possibility of creating a new digital currency which could become commonly known as “Britcoin”.

About Britcoin

• The Bank of England and the Treasury are considering creating Britcoin in the wake of declining cash payments in the region, which are partly due to the Corona pandemic.
• If passed, the digital currency would function alongside cash and bank deposits as a new type of money that households and businesses in England could use.
• It would sit at the crossroads of cash and private payment systems, and it wouldn’t have to be built on distributed ledger technology.
• This ‘britcoin’ will be linked to the value of the pound, making it impossible to benefit from it as an asset.
• The transition could have a positive economic effect by attracting more investment to the UK’s tech sector and lowering transaction costs for foreign companies.
• In one important way, Britain’s digital currency would be unique in that, if passed, it would be issued by the government.
• Only the Bahamas has such a currency at the moment, though China is testing it in a few cities.

Central Bank Digital Currency (CBDC)

• A CBDC is a virtual version of a country’s fiat currency that is represented by an electronic record or digital token (or region).
• A CBDC is a centralised currency that is issued and controlled by the country’s competent monetary authority.
• Each unit functions as a safe digital instrument that can be used as a mode of payment, a store of value, and an official unit of account, similar to a paper bill.

Benefits CBDC

• A CBDC seeks to combine the best of both worlds the convenience and security of digital forms such as cryptocurrencies, as well as the controlled, reserve-backed money circulation of traditional banking.
• New types of digital money could supplement the critical lifelines that remittances provide for the poor and emerging economies.

• It will safeguard citizens against financial uncertainty caused by the collapse of private payment systems.

• Ensures central banks maintain power over monetary policy in the unlikely event that payments move to cryptocurrencies over which they have no control.