The UK government is constantly working to restore former economic glory in the wake of the digital age.
Interestingly, Triple-A hinted that close to 750 million individuals would have adopted cryptocurrency by the close of 2023. Considering the current numbers, the estimation is a couple of million shy. Typically, the leading countries with the most cryptocurrency holders are the UAE, Saudi Arabia and Vietnam, with estimated holder counts of 28%, 19% and 18%, respectively.
Ideally, the UK needs to catch up with only 4.7 million estimated cryptocurrency holders, making up around 6.5% of its population. Despite this comparatively lower adoption rate, the UK’s ruling Conservative party has plans to integrate digital assets into its economic strategies.
As the repercussions of the FTX collapse persisted in January, Economic Secretary to the Treasury Andrew Griffith emphasized the potential benefits of championing cryptocurrency and blockchain technology for future economic gains.
Griffith expressed his commitment to transforming the UK into a cutting-edge financial hub, acknowledging the significant role that cryptocurrency and blockchain technology can play in this endeavour.
While Griffith’s words position cryptocurrency as subordinate to the pound, some observers may question whether he is intentionally downplaying the significance of digital assets for the UK, especially given the recent decline.
The British Pound
History has it that in the Anglo-Saxon era, spanning from 410 to 1066 AD, one pound was equal to the weight of a pound of silver (454 grams), representing a significant fortune at the time.
It wasn’t until 1815–1920, during the rise of the British East India Company, a trading entity for English merchants, that the pound gained prominence in global currency rankings, essentially assuming the role of a reserve currency.
Despite losing its reserve currency status to the dollar during the Bretton Woods agreement, it wasn’t until the 1970s, when US President Nixon “suspended” the dollar’s convertibility to gold, that the pound’s decline became quite evident.
In 1976, grappling with a financial crisis, the UK government was compelled to secure a $4 billion IMF loan. The situation was exacerbated by a growing balance of payments deficit, excessive public spending, and a rapid increase in oil prices.
When adjusted for inflation, the $4 billion borrowed in 1976 translates to $21.03 billion in today’s currency—a substantial 426% increase over 47 years.
Looking back, the chart reveals that 1972, one dollar was valued at approximately £2.60. However, by the mid-80s, this value had sharply declined to as low as £1.10. This decline was influenced, in part, by a general downturn in British industry, including the closure of the coal mining sector and the strength of the dollar following significant tax cuts by President Reagan. Today, the Sterling pound exchanges for $1.26 with the US dollar.
Dwindling Global Influence
In the late 80s, the pound experienced a turnaround from its downward trajectory as the country transformed. This entailed re-invention and defining oneself as a service-oriented economy, particularly financial services. However, the overall downward trend resurfaced with the onset of the Great Recession.
Further, more heat continued to dawn on the GBP in 2016 upon Brexit. More recently, former Prime Minister Liz Truss’s economic decisions, characterized by her “mini-budget” of unfunded tax cuts, triggered market panic and led to a significant drop in the pound, approaching the lows last witnessed in 1985.
It’s not just about the dollar – the pound’s value has taken a hit against other major currencies like the Yen, Euro, and Yuan since the 70s. Back in 1976, you could get 700 yen for one pound, but now it’s down to around 180 Yen – almost a 70% drop.
This decline in the value of Great Britain’s Pound paints a clear picture of the diminishing influence of the UK on the world stage. Describing Britain and the pound as shadows of their former selves would be a considerate way to put it. To put into perspective, Westminster is well aware of this situation.
Why is the UK Considering Digital Assets?
The UK government recently indicated its intention to regulate cryptocurrencies, essentially acknowledging their legitimacy within the country’s legal framework.
A post from the Treasury on February 1 outlined plans to regulate financial intermediaries, including crypto exchanges, which will pave the way for a regulatory environment accommodating everyone.
However, one might wonder the extent to which these actions stem from a genuine belief in the principles of cryptocurrency. After all, Bitcoin embodies decentralization and is fundamentally at odds with structures of control that extend beyond personal sovereignty.
Instead of wholeheartedly embracing cryptocurrency principles, it seems more probable that the UK is strategically positioning itself for a positive stance in anticipation of widespread adoption.
Are CBDCs the Elephant in the Room?
The Deputy Governor of the Bank of England, Sir Jon Cunliffe, mentioned to the Treasury Select Committee that there’s a 70% chance the UK might introduce a digital pound.
Some critics express concerns about CBDCs, suggesting potential privacy risks and the possibility of governments and central banks using them for financial manipulation, such as restricting transactions and limiting people’s ability to transact freely.
The UK government’s commitment to private cryptocurrencies and a digital pound raises questions about its vision for becoming an advanced financial center, as these concepts seem to clash philosophically.
How the Treasury and the Bank of England plan to integrate their vision for a crypto hub with the digital pound remains to be seen.
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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
