The UK Treasury has issued a ‘Call for Information’ on digital currencies in order to weigh the risks and benefits offered by the new technology.
The request is intended to provide the government with the information necessary to fully understand digital currencies, as well as to solicit feedback and opinion from all interested parties.
The Call for Information will be open for one month to allow individuals, businesses and other organisations to submit their comments on a wide range of issues.
The document asks 13 questions, ranging from basic information on the potential benefits of digital currencies, through government involvement and regulation, to new services made possible by block-chain technology. The potential non-monetary uses of the block chain are also addressed.
Notably, the Treasury describes the block chain as an innovation that “could represent a fundamental change in how payment systems can be made to work”.
The UK Digital Currency association said it welcomed the Treasury’s consultation on digital currencies, adding:
“We regard this as a positive step for cryptocurrencies and the process is an example of the UK government’s forward-thinking approach towards FinTech and technological innovation generally. We anticipate that the UKDCA will be actively involved in supporting the Treasury with comments and feedback throughout the process.”
Promoting innovation and competition
UK Member of Parliament and Economic Secretary to the Treasury, Andrea Leadsom, discussed the issue in a government blog post, entitled Digital currencies: 5 reasons we’re calling for information.
Prior to her election, Leadsom spent 25 years working for British banks and financial institutions. She also served on the Treasury Select Committee from 2010–2014.
The first point outlined by Leadsom is the need to promote innovation and competition in the financial sector. Leadsom explained that the government wants to ensure payments technology “works better” and serves the people that use it on a daily basis.
Leadsom notes that an estimated 20,000 Britons now hold bitcoins and approximately £60m-worth of bitcoins are in circulation in the country. She added that new cryptocurrencies are being developed and that new digital currency businesses are setting up in the UK.
As a result, the government wants to know more about the benefits of digital currencies for users and the economy in general, she says.
In the Call for Information document, the Treasury says it intends to examine the benefits of digital currencies and the barriers faced by businesses in the space. Based on the information gathered through the initiative, the government will decide whether or not action is required, the department says.
Notably, the Treasury also makes a clear distinction between digital currencies and virtual currencies:
“The government considers that virtual currencies differ from digital currencies, in that they are issued and usually controlled by their developers, and used and accepted among the members of a specific virtual community. Virtual currencies as defined are therefore out of the scope of this Call for Information.”
Risks and regulation
In addition to the benefits of digital currencies, the Treasury is also interested in any potential risks. Security and vulnerability in comparison with traditional payment services is one of the concerns, along with use of digital currencies for illicit or illegal purposes.
The Treasury listed a number of risks and criminal activities that could benefit from digital currencies, but at the same time pointed out that outright crime risks may be “limited” due to the pseudo-anonymous nature of digital currencies and their reliance on a distributed public ledger.
Potential risks faced by consumers and merchants include security, volatility, lack of international regulation and lack of consumer protection, the Treasury notes.
Leadsom argued that the “safety net” provided by a regulator can give firms and consumers assurances that their interests are protected, thus attracting even more businesses and consumers to the digital currency industry.
Liberal stance on cryptocurrencies
Britain’s overall position on digital currencies can be described as liberal and progressive. London is Europe’s biggest financial hub and, in the past, the government has tried to stay ahead of the curve in terms of regulation and business-friendly policies.
In August, Chancellor George Osborne announced a new initiative to explore the potential role of digital currencies in Britain’s economy and also commissioned a report on the risks and benefits of embracing digital currencies.
Additionally, a recently published FinTech manifesto, backed by more than 150 companies and venture capitalists, urged the government to adopt bitcoin-friendly legislation. And, in June, the Financial Conduct Authority (FCA) announced Project Innovate, an scheme designed to support positive developments in FinTech, including digital currency development.
Two British Crown dependencies, such as the Channel island of Jersey and the Isle of Man, have already adopted bitcoin-friendly policies in an effort to attract more digital currency businesses.
Westminster image via Shutterstock