This brilliant article for the Telegraph by Jeremy Warner begins with these words of warning:
In the Chancellor’s push for an advantage over the ECB, he risks public trust and eroding our privacy. He goes on to add:
Keen to capitalise on Britain’s leading position in fintech (please can we just stop talking about Greensill), the Chancellor, Rishi Sunak, this week announced the establishment of a joint Treasury/Bank of England task force to evaluate the potential of a so-called “central bank digital currency” (CBDC).
If the central bank maintains a single ledger of all transactions, then it is also in a position to know virtually everything that is going on in the world around it. However much importance our own government might attach to privacy, and to libertarian values in general, the creation of a sterling-based CBDC would add enormously to just such a capability. Whatever the safeguards, the temptation to use it in pursuit of Big Brother government might prove too much to resist.
That’s one reason many central bankers are wary of having responsibility for fathering such a currency foisted upon them. Once in receipt of perfect knowledge, it would be very hard for them to continue with the present neutral role they play in the payments system, covering their ears to the cacophony of transactions that makes up a functioning economy.
Yet before the Bank of England can move forward, a whole series of what are essentially political questions first need answering. Do we rate privacy concerns more highly than what the American economist Ken Rogoff has characterised as the cost of physical cash in terms of the licence it gives to illicit finance and trade? When I first entered financial journalism, nearly a half of all currency was central bank money. Today it is little more than 5pc.
Not many people know it, but the vast bulk of money in circulation is the creation of private banks. Is it time to redress the balance? If money is wholly digital, how do you deal with the problem of inclusion? Is it right that the public sector should have a hugely enhanced role in the provision of money? How do we ensure continued competition and innovation in such a world? And perhaps most important of all, we already have functioning digital money; what’s the advantage of moving it wholly on to the basis of central bank reserves?
Sunak should be careful what he wishes for. The race is on for viable, major economy digital currencies. But trust in money is a fragile thing, and where it all ends is anyone’s guess.
For the full article in pdf, please click on the link below: