EU and China’s new digital currencies could devastate UK economy – DANIEL HODSON | Express commentary

EU and China’s new digital currencies could devastate UK economy – DANIEL HODSON | Express commentary

The Chinese version of the renminbi will be launched in February next year and the EU has well-advanced plans to create an alternative digital euro model, generating a substantial platform for its continued assault on the city’s preeminent role. of London in finance. We in Britain have the technical know-how, the people, the positioning and the resources to act quickly to create a strong and viable competitor to the British pound versus the Chinese and European versions.

Yet in the face of this golden opportunity and despite the obvious existential consequences of inaction, we continue to procrastinate, with the Bank of England – the current main protagonist – now mumbling a launch in 2026.
A win / win / win opportunity… A CBDC is not a cryptocurrency; it’s the equivalent of a digital book ticket.

It has the latter’s guaranteed sterling value, but with additional permanent and indelible recording for each individual transaction of the amount (including tiny fractions unlike physical currency), timing, and details of paying and receiving parties.

As such, it presents massive economic and security opportunities, properly framed, controlled and legally regulated, with its combination of comprehensive information, immediacy and infinitesimal cost per transaction.

Fully deployed, it could ultimately offer the UK government significant cost savings and opportunities to optimize tax collection, present regulators with much more comprehensive real-time information, provide security services with more relevant data and , dramatically reduce and streamline payment and capital requirements for financial services and other industries, and provide individuals with access to currently inaccessible banking and payment arrangements.

A victory on all fronts. Is it wasted by indecision and inaction? A solid introduction of CBDC would require an extremely well planned and detailed process, for which the UK has both the experience and the human, financial and technical resources. And it is clear that with winners at all levels, the group of key stakeholders is both diverse and complex, stretching far beyond the Bank of England where the primary responsibility for the Bank currently resides. initiative.

Yet the blatantly obvious way forward is to start by focusing on the 98% of wholesale transactions – some £ 750 billion a day – going through the BoE’s Real-Time Gross Settlement (RTGS) system; and build on this successful but limited wholesale launch to expand into the private sectors of industry and retail over time.

The timing is perfect: the long-awaited replacement of the 25-year-old RTGS is still delayed and not really underway, and this project could be immediately replaced by the CBDC initiative, if the will were there.

The Bank continues to talk about the business aspects of CBDCs and apparently envisions a launch in years, without seizing the astonishing opportunity offered by the current positioning of the City and the UK, a situation so well described by Texans as a ” bird’s nest on the ground ”.

Even a CBDC engagement forum announced in April has, at least publicly, not named any members.

Aficionados of the City’s great disasters should study the history of the Taurus debacle at the London Stock Exchange and whisper in the governor’s ear.

Of course, CBDCs have drawbacks and risks, especially in terms of controlling and protecting the massive additional information they provide.

Such challenges are not at all insurmountable although they can be managed in different ways.

The Chinese renminbi CBDC may well provide an unacceptable amount of transactional information about one of its global users.

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In contrast, a pound sterling CBDC, which is important but used at the margins of the current British banking system and therefore without much change for the latter, could offer much greater protection to the private company and the individual, while offering the benefit. common law and the UK legal system.
However, as Chancellor Rishi Sunak recently pointed out, it is essential for the UK to expand its trade with China after Brexit.

A British pound CBDC, structurally different from a digital renminbi, but functioning as a complement to it, would also have the added benefit of protecting the city’s major global share in renminbi trading and clearing.

Commenting on the Daily Express, MEP David Jones, vice chairman of the European Research Group, said: “Project CityUnited’s proposal to adopt a wholesale ‘digital book’ before moving to the retail version was recommended by the report of the government’s task force on innovation and growth. led by my colleague Sir Iain Duncan Smith.

“This report has been well received by the Prime Minister and I hope he will now put the weight of No. 10 behind rapid deployment. “

The inaction and delay of the CBDC on the part of the UK will bring existential dangers to much of the market and settlement activity of the city and its global status.

All of this requires a priority team of all talent backed by HMG to save the day.

Professor Daniel Hodson is President of the CityUnited Project and former CEO of LIFFE


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