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Talk Of A "Digital Pound" Has Sparked Fear Among Privacy Campaigners

(Alamy)

7 min read

MPs, privacy campaigners and think tanks have expressed concerns that a digital currency considered by the Bank of England could be vulnerable to being used to monitor and programme people’s spending.

Britcoin, a proposed Central Bank Digital Currency (CBDC), if introduced, would be a new form of sterling which is provided and supplied by the Bank of England. 

Both Andrew Bailey, the Governor of the Bank of England, and Chancellor Jeremy Hunt have claimed the rationale behind Britcoin would be to shore up "trust" in British money. Government has ruled out its use to monitor people's spending and believes a new digital pound backed by the central bank would be easy to use and trusted by the public. 

The global market over the last decade has been flooded with new types of digital money known as cryptocurrencies, which include Bitcoin, Dogecoin and Ethereum. Cryptocurrencies, however, are often more volatile than traditional forms of money, as they are not centrally controlled and often operate in less regulated markets prone to wild speculation. 

Britain's proposed CBDC would not technically be a cryptocurrency as it would be controlled centrally, but would share the core principle of being a digital currency. It is thought that in a more fragmented world, a new British digital pound could provide a more stable alternative to cryptocurrencies, which can be used in brick and mortar settings as well as online. 

However, privacy experts are concerned a proposed digital currency, controlled by the Bank, could be vulnerable to manipulation that could influence people's spending habits. 

Mark Johnson, advocacy manager at Big Brother Watch, told PoliticsHome he believed a CBDC introduced by the Government or Bank of England could pose a “threat” to people's financial freedom and privacy.

“These plans present clear threats to privacy, financial freedom and equality but it is not even clear how the British public would benefit from the introduction of a centralised digital pound,” he added.

"Placing the state at the heart of our personal finances threatens to open a Pandora's box of new financial surveillance. A UK CBDC would operate using a core ledger, meaning every transaction would be recordable and anyone with access to the core ledger – be it a public authority or hacker – could potentially see these transactions."

Britcoin as proposed would mimic the use of cash. There is no plan to replace physical coins and bank notes. A CBDC would be held by consumers in virtual wallets, with the option to spend it on everyday goods and services. Plans suggest that interest could not be accrued on Britcoin and there would be no retail bank acting as an interim when transactions are made. 

Debate around digital currencies has become more pressing over the last few years, as physical cash appears to be in terminal decline. Data from Bank of England found cash made up 17 per cent of all transactions in 2020 compared to 50 per cent in 2010.

Danny Kruger, MP for Devizes, who sits on the Treasury Select Committee, told PoliticsHome he believed the Bank of England's proposals for a digital pound have supposedly been “pushed forward” without a “proper public debate” in Parliament. He believed the Bank's current plans for a digital pound would pose a threat to people's liberty and privacy. 

“The most immediate threat is to the financial system itself, with the danger of a run on the commercial banks. But the most substantial danger is to liberty. The digital pound could be 'programmable' - the authorities would have the ability to monitor and ultimately, if they wished, to direct your transactions," he said. 

“The Bank stresses they have no such intention, but once the technology is in place the arguments for it, in some crisis of the future, may prove irresistible. If we are to have a CBDC it needs to be decentralised and unprogrammable.”

In a consultation, the Bank of England has said it was “possible” to “programme the digital pound so that it could only work in certain ways”. However, the Treasury and Bank of England has insisted it would not pursue "government or central bank-initiated programmable functions”.

A programmable CBDC would make it easier for consumers to spend digital notes on certain goods while making it harder and even impossible to purchase others. Nuggets Chief Executive Alistair Johnson, who has worked on Britain's CBDC, claimed it could be used to find out people's age and nationality. 

A House of Lords report published in January 2022 claimed the introduction of a CBDC could have “far reaching consequences”, including increased state surveillance on "people's spending choices". Its conclusion claimed there was not yet a “convincing case” for Britcoin.

Maxwell Marlow, Director of the free market think tank the Adam Smith Institute, told PoliticsHome he believed the Government could potentially “trace transactions and our digital wallets”.

“With Sunak promising to make Britain the 'crypto capital' of the world, there are better avenues than throwing the state into the market,” he said.

Britcoin could be introduced into the UK economy by 2030. Jon Cunliffe, Deputy Govenor for Financial Stability, has claimed Britain could be five years away from seeing it used by consumers. 

Earlier this month Sarah Breeden was announced as the Bank’s new deputy governor, who will take charge of plans to implement a new CBDC.

Matthew Feeny, Head of Tech and Innovation at Centre for Policy Studies, claimed a new digital pound would make it easier for the Government to monitor people’s spending.

But he added the privacy concerns will not be dissimilar to those being monitored by a retail bank.

"The creation of a 'digital pound' would not raise many privacy concerns that do not already apply to digital data associated with traditional banks, which store troves of information about incomes, lifestyle, travel, health, family status, education, and much more.

“However, it is true that a digital pound would make it much easier for the government to engage in financial surveillance,” he added.

Mark Pritchard, MP for The Wrekin, told PoliticsHome that as private digital currencies said there was a case Britain should get ahead of central banks in introducing a CBDC.

“There is also, arguably, a growing case for the UK's central bank to be ahead rather than behind other central banks in providing access to digital liquidity, risk analysis and inter-banking and consumer oversight. It is clear, some of the large retail banks already trade in digital currency, but tend not to broadcast that fact," he said.

Atlantic Council, an American think tank, found 130 countries which make up 98 per cent of the global economy are poring over the advantages and disadvantages of a digital currency. Its data found 19 of the 20 G20 nations were in advanced stage of CBDC development. 

The European Central Bank is in advanced stages of launching a digital Euro. Eleven countries have already launched a digital currency, while major economies such as India, China and South Korea have already piloted schemes and roll-outs. 

Despite fears from privacy campaigners and civil liberty groups, the push for state-controlled digital currencies from Governments across the world is only likely to grow stronger. 

A HM Treasury spokesperson said under the proposals the digital pound will be "as private as the card payments and bank accounts that millions use every day".

“This means the Government nor the Bank of England can access to anyone’s personal data or see how people are spending their money," they added. 

“We understand that cash remains king for many, which is why we have protected access to cash in law – meaning the vast majority of people will have to travel no further than three miles to withdraw money.”

 

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