City figures have warned that London’s status as Europe’s financial capital will be in serious jeopardy if the Treasury and Bank of England are slow to introduce digital Sterling.
Rishi Sunak said last month that the Treasury was looking into one day releasing a so-called “Britcoin”, but that no decision had been made.
Sunak said digital Sterling would “would exist as a complement to cash and bank deposits” if it is rolled out by the BoE.
China has already outlined concrete plans to launch a digital Renminbi, making it the first central bank digital currency.
Daniel Hodson, former chief of Nationwide Building Society and the London International Financial Futures and Options Exchange, told City A.M. that any UK central bank digital currency must be instead geared toward the financial services sector.
It has been widely argued that commercial financial transactions will be made faster, cheaper and safer by the use of digital Sterling.
Hodson said that if the EU, which is laying the groundwork for a digital Euro, adopts a digital currency before the UK then it will likely steal away masses of clearing activity from London and damage the City’s post-Brexit standing.
“The City of London’s Euro denominated financial markets, comprising decision making, transactions, clearing and settlement have been under continuous attack since Brexit, initially in respect of cash equity transactions,” he said.
“However the City’s multicurrency, multiproduct, deep and diverse markets and their associated clearing and settlement activities and institutions have so far largely protected against any demarche to EU financial centres.
“An early wholesale led Euro CBDC, i.e. in advance of any sterling model, would gift an immediate opportunity rapidly to move the bulk of Euro based transactions away from London to the continent, probably mainly to the advantage of Paris, based on the cost, speed and capital saving associated with its use.”
The Treasury and Bank of England recently launched a taskforce into digital Sterling, with a report expected to be released by the end of this year.
However, there is concern from some in the City that this will only kick the issue into the long grass.
Peter Randall, founder and chief executive of pan-European equity exchange Chi-X Europe, said that the Treasury needs to make this review and a potential rollout a larger priority.
“London’s well set, but it depends upon the government pushing the Bank of England and Treasury to get things going,” he said.
He also called for the BoE to consult with a wider range of firms and stakeholders in the City as a part of its review.
“Asking the incumbents for a view of innovation and change would be a bit like asking the wooden Navy for their views on the submarine,” he said.
“It’s as stark as that.”
The UK’s financial services industry lost its wide-ranging access to EU markets on 1 January, with firms instead having to move assets and people to the continent or navigate a patchwork of regulations from individual member states.
Most City firms were prepared for this and moved thousands of jobs and more than £1 trillion of assets to EU capitals between 2016 and 2020.
The City of London faced early post-Brexit disruption in January, with Amsterdam overtaking London for Euro-denominated share trading. The gap has since largely been pegged back by London.
However, the UK’s clearing houses, like the London Clearing House (LCH) have temporary access to the EU to ensure financial stability and continue to dominate this field.
Peter Seymour, independent payments infrastructure expert, said an EU digital currency would help Paris and Amsterdam continue their assaults on the City post-Brexit.
“If you see anther central bank standing up a digital currency then it will be very simple for those international banks to shift to the lower point of cost,” he said.
“The City is also full of different trading platforms and they could very easily go to a different country. If we don’t do it we’re not defending what we have got in the City and it’s an opportunity too.”
The Bank of England declined to comment.