TECH TALK: BILL MAGEE says businesses remain wary of the pitfalls around the proposed digital currency
The Bank of England and the UK Treasury have their work cut out to sell the catchy-titled “Britcoin” to cash-strapped companies, especially those conducting or planning cross-border deals. A BoE consultation period is about to begin and a digital pound could be in circulation as soon as 2025.
They’re up against a decade-and-a-half of growing commercial animus towards the headline-grabbing maverick of the finance marketplace. Full of scams and scandals billions of digital coins have disappeared into the ether. If they ever existed in the first place.
The challenge is how to convince large numbers of firms that have studiously avoided an area labelled the “wild west”, where mistrust of digital currencies is palpable.
Britcoin was announced as a stable alternative to the unregulated, high-risk and highly volatile crypto assets marketplace that began with the first coin in 2009. “Bitcoin” remains market leader despite plunging 64% in value in 2022.
The digital pound will undoubtedly be heavily marketed in the run up to its probable launch. But the worst thing the UK government could do is pressure companies into signing up. One senior finance executive who preferred not to be named, told me: “It seems like a Brexit offshoot, if not something of a political gimmick.
“It carries with it unnecessary disruption and an extra layer of financial complexity that firms just do not need at this time.”
He claims it would bring unnecessarily disruptive admin and red tape that a company can well do without, “especially those conducting, or planning, costly cross-border deals”.
Detractors also point to threats to commercial confidentiality, where privacy-invasive default settings and deceptive interfaces take an unwitting organisation into unforeseen and costly areas online.
The latest digital scandal involves Arif Naqvi, founder of the largest private equity outfit Abraaj, facing trial over £165m in crypto coins. He claims he doesn’t know where they’ve gone. He even persuaded Bill Gates to invest in a scheme to develop affordable African and Asian healthcare. An earlier mighty collapse, that of FTX, involves £8 billion in digital coins disappearing.
Yet another snag is how a single Britcoin equalling one pound sterling can be squared with unregulated currencies. A single Bitcoin, by comparison, equals approximately £20,000 although, in any day, it can rise and fall at an alarming rate.
BoE says a more stable, blockchained immutable “core ledger” for business and consumers will safeguard against financial crime with digital wallets accessed via smartphones or smartcards.
China has a digital yuan pilot programme involving 260 million people. A US trial involves top global banks including the Federal Reserve Bank of New York. The European Central Bank is finalising its investigation into a digital euro, as the EU calls for fast-track rules for banks.
Bitcoin is already legal tender in El Salvador, copied by Central African Republic. Are they ahead of the game or foolhardy?
The International Monetary Fund says the latter. It has repeated its warning to countries not to adopt digital currencies as legal tender due to the high risk of instability.
Back in the crypto playground it’s another world, a bubble dominated by wealthy individuals looking to add value to an already bulging portfolio.
Bloomberg’s wealth index says high-net-worth individuals (HNWs) are unfazed by the chaos. Global Digital Content cheekily describes crypto market capitalisation as “infinity”.
Yet, such disruption is having a lasting and damaging effect. Cryptopreneurs have developed a split personality. Call it a digital duality, fittingly like two sides of a coin. On the one hand are well-heeled cyber asset speculators unruffled by scandals and scams – almost like a “bring it on” challenge.
But on the other, such impulsive action is tempered by the emergence of digital “rehab” centres rescuing one-time cryptocurrency devotees desperate to wean themselves off a risky online pastime.
Global asset consultant deVere Group points to a “crypto winter” thawing. HNW clients typically have £1m to £5m of investable assets, undeterred by the bear market and anticipating a bull run.
The global digital assets footprint has now surpassed one trillion dollars. But if it all crashes, whether an HNW or under-pressure business, it’ll a bit late then for that crypto rehab centre.
This column is supported by IT solutions company Exception