The Bank of England and Treasury have set out a plan to introduce a new central bank currency, including a new state-backed “digital pound” that could be launched this decade.
A consultation on the digital currency will be launched by the Bank and Treasury on Tuesday.
The new digital pound would be issued by the Bank of England and is “likely to be needed in the future” as use of cash and cards continues to change.
But the consultation and research process does not mean the central bank digital currency will definitely be issued, with the decision due to be made later.
There have been years of speculation that the currency could be considered amid the rapid growth of new digital financial formats, such as cryptocurrencies and stablecoins.
The Treasury has stressed that the potential currency is not a crypto asset, which are privately backed investments.
Prime Minister Rishi Sunak asked the Bank of England to look into the case for a bank-backed currency in 2021 when he was chancellor.
In October, Mr Sunak’s Financial Services Minister Andrew Griffith warned that a long delay in issuing a digital pound could create problems for the economy.
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“While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new way to pay that’s trusted, accessible and easy to use," said Chancellor Jeremy Hunt.
“That’s why we want to investigate what is possible first, whilst always making sure we protect financial stability.”
The Bank of England will conduct more research and development work while the public is invited to take part in the consultation process.
The Bank and the Treasury said the currency would not dramatically alter how British people use money.
But the they believe it could help to “ensure the public have access to safe money that is convenient to use as our everyday lives become more digital”.
The consultation is due to take about four months. It is understood that the design phase is then likely to continue until at least 2025, from which time a final decision could be made.
If it gets approval, there would then be significant investment to launch the currency, which could take place during the latter half of this decade.
The currency would be issued and held by the Bank of England, but intermediaries, such as consumer banks or other businesses, would be needed for people to spend it.
There are likely to be initial restrictions on how much of the currency any individual or business could hold.
“As the world around us and the way we pay for things becomes more digitalised, the case for a digital pound in the future continues to grow," said Andrew Bailey, Governor of the Bank of England.
“A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability.
“However, there are a number of implications that our technical work will need to carefully consider.
“This consultation and the further work the bank will now do will be the foundation for what would be a profound decision for the country on the way we use money.”
Countries around the world, including the US and China, and the eurozone, are also considering similar proposals.
“We fully support the Bank of England’s work exploring the potential benefits of a safe and stable CBDC," said Tulip Siddiq, Labour’s shadow city minister.
“This is a welcome contrast to the Conservative government’s promotion of the crypto wild west, which has put millions of people’s savings at risk.”
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What are NFTs?
Are non-fungible tokens a currency, asset, or a licensing instrument? Arnab Das, global market strategist EMEA at Invesco, says they are mix of all of three.
You can buy, hold and use NFTs just like US dollars and Bitcoins. “They can appreciate in value and even produce cash flows.”
However, while money is fungible, NFTs are not. “One Bitcoin, dollar, euro or dirham is largely indistinguishable from the next. Nothing ties a dollar bill to a particular owner, for example. Nor does it tie you to to any goods, services or assets you bought with that currency. In contrast, NFTs confer specific ownership,” Mr Das says.
This makes NFTs closer to a piece of intellectual property such as a work of art or licence, as you can claim royalties or profit by exchanging it at a higher value later, Mr Das says. “They could provide a sustainable income stream.”
This income will depend on future demand and use, which makes NFTs difficult to value. “However, there is a credible use case for many forms of intellectual property, notably art, songs, videos,” Mr Das says.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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