Comment by rahimnathwani | Hacker News Reader

Comment by rahimnathwani | Hacker News Reader

A bunch of comments in this thread claim that the pound is already digital, because you can send and receive pounds using a mobile app or online banking. But these transactions simply transfer obligations (debts) denominated in pounds between parties. They are not operations on actual pounds (i.e. on the central bank currency).

You can trade 'pork bellies futures' quickly, and using nothing but a computer. But no one claims pork bellies are digital. When people trade, they're effectively trading IOUs, and not the actual bellies.

A Central Bank Digital Currency would allow individuals to hold and transfer 'real' pounds (M0). Currently, only banks and selected other financial institutions can open accounts at the Bank of England.

If you think you (an individual) can currently hold digital pounds, just because you have a bank account, consider this question. If you have 200k GBP in your bank account, and the bank goes bust, will you still be able to withdraw 200k GBP?

While deposits up to some amount are guaranteed FSCS, in reality the government simply can't stand by while there's a run on a consumer bank. Northern Rock was nationalized when this happened in 2008. Even with the FSCS, customers don't want to risk their money being inaccessible while they wait on their claim to be processed.

Now imagine a banking system where banks can go bust without savers (with just cash on their accounts) having to worry. The aftermath of the global financial crisis would have been quite a bit different: Fewer bankers getting a bailout and more shareholders of big banks actually being held accountable for the unduly risk they took. The fact that a lot of people's money is debt on the balance sheet of a bank creates dangerous co-dependencies between let's say the investment banking and the classical private banking. There are many ways this can be addressed but CBDC are definitely one of them.

Wasn't that the case with Lehman's? No savers affected yet still precipitated a huge crisis. Too big to fail.

Banks can always go bust without savers being affected. You have a well documented resolution procedure for banks, which involves the shareholders taking a bath and HM Treasury recapitalising the bank using the Contingencies Fund.

It is for the Bank of England to take the loss, not the depositors, since the Bank of England is regulating the banks.

"They are not operations on actual pounds (i.e. on the central bank currency)."

They are - because the deposits are insured 100% up to £85,000 by the deposit protection scheme.

You can show mathematically that an insured system and a in-specie system are exactly equivalent.

If I have more that £85,000 then I put it in National Savings for absolute security.

That covers over 99% of "digital cash" situations in the UK.

Neither of those things have anything to do with the central bank, because central bank money in the UK is also a derivative. The operational assets of the Bank of England are a claim on the National Loans Fund with recourse to the Consolidated Fund and ultimately parliamentary authority. Which is where Sterling truly originates.

You have a point here, but sadly most of the current state of art in CBDC research avoids storing accounts at Central Banks due to the obvious risk of disintermediating banking system.

The points of others thread stays: what is the point of CBDC for individuals if the supply is not limited and not stored at Central banks...

I'm not up to date with the state of the art, but the March 2020 paper from the Bank of England seemed clear that balances would be held on a ledger at the Bank of England. Whether the balances on this ledger would be assigned to specific beneficiary owners, or only to intermediaries (like retail banks) wasn't clear. But, in either case, only the central bank could issue/mint new balances.

It's just bank accounts at the Bank of England - something the BoE got out of in 2008.

Anything else drops down a money laundering black hole.

Are British bank accounts not FDIC insured?

> Are British bank accounts not FDIC insured?

No. They are protected by the FSCS [1].

[1] https://en.wikipedia.org/wiki/Financial_Services_Compensatio...

Even if UK banks were covered by FDIC (which covers only US banks), the limit is $250k (less the 200k GBP I mentioned in my comment).

The UK equivalent is capped at 170k GBP per account-holder: https://www.moneysavingexpert.com/savings/safe-savings/

Does the FDIC cover any other country's banks than the US?

Usually "foreign" banks can mean multiple things. Imagine you have a bank out of the UK with a subsidiary based in the US (one example could be Barclays in the UK and then Barclays US).

The US based subsidiary could potentially be FDIC insured, but wouldn't cover deposits denominated in the originating foreign bank's deposit, which is logical IMO.

The FDIC has a page about this but it's pretty useless.

https://www.fdic.gov/regulations/laws/part/

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