Skip to main content

Bank of England CBDC - friend or foe?

Read time: 8 minutes.
digital coins

Britcoin, Digital Pound - these are terms sometimes applied to a proposed new British form of digital currency. You might assume these refer to novel forms of currency like Bitcoin, which tend to have a slightly controversial reputation. 

The Chinese government’s control of its citizens is often linked in reports to its CBDC (Central Bank Digital Currency) system - but it’s actually not as simple as that. 

The Bank of England is currently carrying out a public consultation on whether the UK should have a digital currency and what form it should take. 

This involves issues around fundamental freedoms which are intrinsic to a Christian worldview (whose ethics enabled modern financial systems in the first place). Maybe it’s time for us to have an opinion – and you can contribute to the decision  'On 1 June, the original deadline of 7 June was extended, in line with an extension of the deadline for responses to the Consultation Paper'. 

To understand a bit more of the context, it seems helpful to describe some of the key components and offer some responses.

Banking systems 

Nations have Central Banks that control their currencies. Until the Twentieth Century these currencies were linked to something of real commercial value, like gold. The paper note represented the gold held in the nation’s vaults. No countries now have this – instead a ‘Fiat’ system where the value ends up being what you can get for it within the financial system. As it’s not linked to a real asset, Central Banks sometimes ‘print money’ (euphemistically ‘quantitative easing’) which reduces the value for all or can seek to reign it in. 

Central Banks do not manage the day-to-day ‘retail’ use of money, our commercial banks do that through supplying banknotes, managing bank transfers, cheques or electronic payment (debit cards), recording things on a central computer database ‘ledger’. We deposit money with them which they use with interest and we take some out again for purchases. We can also get money out via a loan (credit) often secured on an asset like our house, or on our creditworthiness to repay it and the accruing interest. 

Credit card and mobile payment companies work in an analogous manner. 

A central settlement system sorts out inter-bank and inter-nation transfers. 

In a well-regulated and stable system we trust our savings are safe, and payments are correctly stored, though the value is just a number in the bank’s ledger database somewhere. If the financial institution cannot cover its liabilities with its assets, our savings would be lost. 

Crypto banking

A cryptocurrency is a digital record of a made-up unit of value that someone is prepared to buy. Like art or actual gold its value is linked to its rarity. A cryptocurrency’s rarity is based on the difficulty and expense of generating the cryptographic data required to store transactions (who owns a given amount) in a tamper-proof form without a central intermediary. It is also limited in volume.

 The technology used to accomplish this remarkable feat is a ‘blockchain’ where copies of all ownership transactions are held on each of a network of computer nodes. This is a distributed ledger so no central control. The drawback is that cryptocurrency is not as liquid as Sterling (though this is changing) so you have to find someone who wants to swap your cryptocurrency for cash and there are various exchanges that do this – as for gold. The value of a cryptocurrency relative to a local currency can fluctuate due to normal market forces. 

Bitcoin (₿) started in 2009 and is the most popular cryptocurrency. 

Central bank crypto? 

So why would a Central Bank want to use cryptocurrency technology, when a good retail system is in place with commercial banks, credit card companies etc and cryptocurrency ledger management is the exact opposite of Central banks? They say ‘sustaining access to, and promoting the usefulness of, central bank money; and promoting innovation, choice and efficiency in domestic payments.’ (p4) Part of the answer also seems to be - because everyone else is doing it. There may also be a desire to emulate the edginess of the supposed rouge currencies, or to have a closer involvement with retail banking. However the separation of banking powers is beneficial and necessary. 

It’s also said that there will be faster transactions, but does this mean faster than getting a fiver out or the electronic speed?holdings However current systems are sufficiently fast. 

It is also claimed that it would give access to ‘cash’ for people who cannot get to banks/ATMs – but what would they need it for if it’s electronic and there are existing electronic solutions? 

What would it look like?

 At the moment if we want cash we can go to a bank or ATM and can then buy what we need as all retailers (bar a very few) accept cash. 

From what can be implied from the Bank of England’s Technical Spec, if we wanted Digital-pounds we would first set up an account on the BoE system through an intermediary known as a ‘Payment Interface Provider’ (PIP) and then transfer money into it from our bank. We would then need an app from the PIP to act as a digital ‘wallet’. 

If we wanted to buy something in a shop, they would first have to be able to accept the new payment method (by having a contract with a PIP). The transaction would go from your phone, and the retailer’s PoS device, via PIPs to the BoE’s ledger to be reconciled. The current proposals are that the BoE ledger would have no personal data – so some sort of one-way ID would be used to identify you. There has to be money in the BoE account first – you won’t be able to be overdrawn and there is also no interest added (as it’s ‘cash’). 

This retail electronic dance is already achieved by debit cards and mobile apps. 

A key point about cash is that it is anonymous when spent, and the BoE claims to support this, but clearly the PIPs will keep records. 

Cash can be easily passed to friends, family etc and these person-to-person transactions will be supported by BoE, but of course the recipient would need an account and be identifiable - as with the existing bank-transfer system, so not anonymous. 

So overall it looks like an expensive solution looking for a problem – unless there are other unvoiced motives. 

What about China? 

The CCP seeks to control the Chinese population more completely and has introduced a Social Credit system. This is used to limit access to goods or services. 

The CCP is developing a CBDC. At the moment the Digital Yuan has relatively little use with The People’s Bank of China conducting trials in some cities (even giving some Digital ¥ away to encourage uptake). This system is said to have ‘controllable anonymity’... 

China has cash, mobile payment with Alipay or WeChat Pay and uses credit cards. 

Even with a global-style mixed economy of payment methods it still manages to control access to goods and services, so the CBDC itself is not the way this is enforced – instead your personal ID is required (as well as your payment method) and this is checked against your Social Credit score. The Digital Covid Certificate on smartphones in Europe copies this authoritarian impulse. Note that the CCP justifies its restrictions to be for the general good of all... 

We’ve seen in Trudeau’s Canada that legitimate protestors (and people making donations to them) have had their bank accounts frozen. PayPal has refused or halted services to some organisations whose views they do not like and also threatened fines up to $2,500! Some cannot get bank accounts like same-sex recovery charities or Laurence Fox’s Reclaim Party. These are astonishing breaches of normal citizen freedoms under the guise of ‘progressivism’ and show that such oppressive measures do not need CBDCs. 

CBDCs are more finely grained though and can be programmed to track each purchase, not just specific ones like travel, for inspection and control. BoE says they won’t do this. 

However the fear is that CBDCs make all of this so much easier as it is fully in the hands of government. Assurances about anonymity and not ‘programming’ (weaponising) the currency are too easily swept away. A US commentator pointed out that the anonymity barrier proposed by the US Federal Reserve is as ‘strong as a sheet of Kleenex’! 

As the CBDC system is controlled by the government, if the central ledger is not anonymous, then it’s possible for certain transactions (eg Airline ticket) to be blocked if your ‘Social Credit’ is too low: not vaccinated, belong to wrong church, or you hold the wrong opinions. This system could also be used to control ‘carbon’ rationing: if you have already bought your 100g of bacon, or litre of fuel, this week.

 Digital currency and cryptocurrency 

This monitoring and control of ‘digital currency’ is often associated with cryptocurrency technology, Blockchains etc – but you don’t need that technology and the Chinese system may not use it – not least because it’s very expensive to manage. The BoE may not as well. 

The point of course is that cryptocurrency systems are designed to be outside any Government’s control and so not subject to its political machinations or privacy intrusions. 

Some large organisations are shifting major holding from US dollars to cryptocurrencies like Bitcoin. At the consumer level, you can even pay for parking or coffee in some areas via crypto exchange wallets. 

A Christian perspective 

Privacy The dignity of each person and the associated personal responsibility before God are fundamental to a Christian worldview, so any incursion into someone’s personal life needs to be justified rather than the assumption that the state has the right to interfere whenever it feels like it. On this principle programmable CBDCs should be opposed. The BoE recognises this danger as they say they will preserve anonymity and not ‘Programme’. Some may say that only criminals should fear scrutiny – but what if the watchers have ungodly intentions? We know that in the UK there is an army group (77 Brigade) that during Covid was checking social media for ‘aberrant’ views, many of which later proved to be true. The ‘for your safety’ excuse has been blown! So it does not seem to be reasonable to trust the Government or its agents. Christian mercy prefers to give the benefit of the doubt, and not to be overly repressive - which loses more than it gains. 

Wise budgeting Groups like Christians Against Poverty have a money-management scheme that uses bank accounts where essential but cash for more discretional items. They say that people spend 18% less when using cash. Electronic ‘cash’ would not have the same helpful effect. Credit cards and mobile payments are pushed because there is less purchase- resistance. This implicit manipulation should not be encouraged. 

Personal fruitfulness God charges individuals to be fruitful in all ways and holds us responsible for how we use our ‘talents’ (not the state). The basic premise must always be that deposited money belongs to the citizen, being held in trust by the bank, not the property of the bank (or state) - being issued to you by the bank when it deems it appropriate. CDBCs, misused, encourage the latter view.

Sphere sovereignty The Government may find it hard to get people to take up Digital-pound accounts so may choose to pay Social Security benefits only into these accounts. They may later be tempted to think they then have the right to limit what the money is spent on (via ‘programming’). We may sympathise with this to some extent – but it’s the thin end of the wedge. What about state pensions? 

Our system of layered access to finance (accidental or judiciously planned) fits with a Christian's recognition of mankind’s fallibility and the need to partition power. Centralising must be resisted for all our good. 

Trust There is the whole issue of honesty and integrity. The Technology Working Paper notes that ‘no final decision can be taken at this stage’ about the whole project (p8) but it’s very hard to believe it won’t go ahead and will no doubt cost vastly more than estimated and once in place measures will be needed to ensure it gets used – to justify its cost. 

It’s tragic that we find it hard to believe that Government Servants will act in the interests of all the people, but that is the position many find themselves in particularly after the last 3 years. 

However the early church had much more to contend with, even Nero, but the Ruler of Kings is ever-present. 

Digital Magna Carta 

It's been suggested that we need a digital-monetary ‘Magna Carta’: 

  • cash (banknotes) must always be available for those that wish to use it at no extra cost (at ATM or bank)
  • cash must never be tracked (modern banknotes might make this possible) 
  • retailers must accept cash for in-person transactions
  • any CBDC should not undercut other payment options (ie a 2-4% transaction fee must be included). This should cover the cost of the system – not the taxpayer. It will also incentivise retention of cash facilities by retailers. 
  • central banks are prohibited from retail banking operations
  • no financial institution has the right to withhold services based on a person or organisation’s opinions (ie as for ‘protected characteristics’) 
  • government organisations must never have routine access to personal/organisational financial information 
  • government must allow pensions and benefits to be delivered to any bank of the recipient's choosing 

Hopefully this gives some food for thought on this area so please comment (by 7 June)! Main page: Some suggested responses are here.