Digital Pound — Central Bank Digital Currency (CBDC)

Rasim Sen/Blockchain Architect-zero2hero founder

6 min readMar 17, 2023

Digital Pound — Central Bank Digital Currency (CBDC)

The UK government is currently exploring the possibility of launching a Central Bank Digital Currency (CBDC), also known as a digital pound, which would be a digital version of the pound sterling. The idea behind the digital pound is to provide a secure and efficient way to conduct transactions while also reducing the costs associated with traditional payment methods.

Pros of a Digital Pound

One of the primary advantages of a digital pound is the increased efficiency of transactions. Digital currencies are much faster and cheaper to transfer compared to traditional payment methods. This could lead to significant cost savings for both consumers and businesses.

Another benefit is the potential for increased financial inclusion. Digital currencies can provide a means of accessing financial services for those who are currently underserved or excluded from the traditional banking system. Additionally, the digital pound would be a secure and transparent form of payment, reducing the risk of fraud and other forms of financial crime.

Cons of a Digital Pound

One potential downside of a digital pound is the risk of cyberattacks. Digital currencies are vulnerable to hacking and other forms of cybercrime, which could lead to significant financial losses. Additionally, the adoption of a digital pound could have negative implications for traditional banks, which could lose customers and revenue.

Opportunities for Governments, Financial Institutions, Banks, Fintech, and Startups

Governments, financial institutions, banks, fintech, and startups could all benefit from the introduction of a digital pound. Governments could use the digital pound to increase financial inclusion and reduce the cost of payment processing. Financial institutions and banks could develop new products and services based on the digital pound, while fintech and startups could innovate and create new payment solutions.

Potential Products for a Longer Term

The introduction of a digital pound could lead to the development of a wide range of new products and services. For example, banks could offer digital wallets that allow customers to store and manage their digital pound holdings. Fintech and startups could create new payment solutions that leverage the digital pound, such as peer-to-peer payment platforms or mobile payment apps.

Downside Examples

While there are many potential benefits to the introduction of a digital pound, there are also some downsides to consider. For example, the adoption of a digital pound could lead to increased financial surveillance by the government, which could raise concerns about privacy and civil liberties. Additionally, the introduction of a digital pound could lead to the displacement of traditional banks and financial institutions, which could lead to job losses and other economic consequences.

Comparison with Other Developing Technologies

The UK is not the only country exploring the potential of a CBDC. China is currently testing its digital yuan, and other countries, including the US and the EU, are also considering the introduction of digital currencies. One of the key differences between the digital pound and other digital currencies is the level of government control. The digital yuan, for example, is closely controlled by the Chinese government, while the digital pound would likely be more decentralized. Additionally, the introduction of a digital pound could lead to increased competition in the global financial system, which could have significant geopolitical implications.

Here are some potential comparisons between digital pound and other developing technologies:

Cryptocurrencies: Cryptocurrencies like Bitcoin and Ethereum are digital currencies that are built on blockchain technology. Like the digital pound, cryptocurrencies offer the potential for faster and more secure transactions, as well as lower transaction fees. However, cryptocurrencies are not typically backed by a central authority or government, which can lead to greater volatility and uncertainty in the market.
Stablecoins: Stablecoins are digital currencies that are designed to maintain a stable value by being pegged to a traditional currency, commodity, or other asset. Stablecoins offer some of the benefits of digital currencies, such as fast and cheap transactions, while also providing greater stability than cryptocurrencies. However, stablecoins may not be as widely accepted as traditional currencies and may face regulatory challenges in some jurisdictions.
Artificial Intelligence (AI): AI is a rapidly developing technology that is being used in a variety of industries, from healthcare to finance. AI has the potential to automate complex processes, improve decision-making, and increase efficiency. However, there are also concerns about the potential impact of AI on jobs and the economy, as well as the ethical considerations of using AI in certain contexts.
Internet of Things (IoT): The IoT refers to the interconnected network of physical devices, vehicles, and other objects that are embedded with sensors, software, and other technologies. The IoT offers the potential for greater automation and efficiency in industries such as manufacturing and transportation, as well as new opportunities for data collection and analysis. However, there are also concerns about the security and privacy implications of a highly interconnected network of devices.

Each of these technologies offers unique benefits and challenges, and it’s important to consider them in the context of the specific industry and use case.

Potential market cap of Central Bank Digital Currencies (CBDC)

It’s difficult to predict how the market cap of a digital currency will change over such a long period of time, as it will depend on a variety of factors such as adoption rate, competition, and macroeconomic conditions.

That being said, some analysts have estimated that the global market for digital currencies could reach trillions of dollars in the coming years, as more and more people and businesses turn to digital currencies as a faster, cheaper, and more convenient way to transact. If the UK’s digital pound were to gain widespread adoption both within the UK and globally, it could potentially capture a significant portion of this market and have a high market cap.

However, it’s important to note that there are many factors that could impact the market cap of the digital pound over the next 50 years, including regulatory changes, technological advancements, and shifts in consumer behavior. As such, any estimates of the potential market cap of the digital pound over the next 50 years should be taken with a grain of salt and viewed as speculative.

Conclusion

In conclusion, the introduction of a digital pound could have significant benefits for the UK economy, including increased efficiency, financial inclusion, and transparency. However, there are also some potential downsides to consider, including the risk of cyberattacks and the displacement of traditional banks and financial institutions. Governments, financial institutions, banks, fintech, and startups could all benefit from the introduction of a digital pound, and the technology could lead to the development of a wide range of new products and services. The UK is not alone in exploring the potential of a CBDC, and the introduction of a digital pound could have significant implications for the global financial system.