March 14, 2023

Digital Pounds - Part 6: International Consequences

HMT and BoE recently launched a consultation on their proposal to introduce a Central Bank Digital Currency, the Digital Pound. Parts 1 and 2 of this series explore the case in favour of implementation, whilst Parts 3, 4 and 5 discuss challenges which still need resolving. This part takes a different approach, looking beyond the UK. 

International Impacts

I recently listened to former BoE Deputy Governor Paul Tucker discuss his new book on the Macro Musings podcast. During the show he highlights a fact that central bankers have not always been keen to heed: all monetary policy is also foreign policy. Whilst he was referring especially to swap lines with emerging economies like India, similar considerations surely apply to a Digital Pound which is accessible to foreign nationals. The diplomatic impacts are far beyond my experience, it would be interesting — essential, in my opinion — for them to be considered thoroughly before progressing with the project. 

A few potential impacts stand out: 

  • Would the Digital Pound take off in any other (commonwealth?) countries for retail transactions? Applications such as M-PESA in East Africa show there is a strong appetite for digital money in these countries. When faced with volatile domestic currencies, individuals and businesses may choose instead to use what is effectively sterling instead. 
  • Would this be a desirable policy outcome? Trade links with the UK would surely be strengthened as a result, in a way that the US is benefitted by the dollar's role in global trade. 
  • Would other major central banks (Fed, BoC, ECB) be forced to respond if the Digital Pound was successful, to position themselves to be a global digital currency? If one of these banks moves first can the UK really resist responding? 
  • Would a Digital Pound, open to foreign nationals, facilitate capital outflows from those countries in times of stress as individuals and businesses opt to buy GBP instead, and to do so outside of their own country’s financial system? How will governments who need (or wish) to impose capital controls react to the UK facilitating cross border payments in this way? 

This is Part 6 of a submission in response to HMT’s and BoE’s public consultation. To continue reading Part 7 click here. The further parts are available here.

Related posts

Computers aren't supposed to be able to do that

18 months ago he would have been right. To me, it had stopped being remarkable they now can.

Introduction to Futures and Foresight for Emerging Technologies

No one is sure about how the capabilities of AI will develop, let alone how business, government and society will respond to them. But this doesn’t mean that you should stand still. Tools exist for helping decision makers make smart choices in the face of uncertainty about the future, where traditional forecasts are liable to falter.

Apple Vision Pro - Seeing The World Through A New Lens

The Vision Pro isn’t only an AR/VR play from Apple - it’s a first bid to equip us with the tools we will want to be using in the future world of work.

Models and Beauty Contests

In the face of a changing world, refusing to act until you can be sure of the outcome is a decision in and of itself. Sometimes wait and see is the correct decision. Other times, it is an invitation to competitors to steal a march.