Does Britcoin have a future? Central Bank Digital Currencies have a moment

Oliver Bullough



Whenever people have explained to me how digital currencies are going to revolutionize the world, are in the process of doing so, or have already revolutionized it, a little voice in the back of my head has always said: if this was actually true, governments would have stepped in to stop them.

Establishing a monopoly on issuing coins was one of the earliest steps princes took for a reason, in that it’s both incredibly important, and extremely lucrative, and it’s hard to see how powerful countries would just surrender all that because, you know, blockchain and stuff. Governments as a rule are not in the business of surrendering power.

China has long been an outlier here, however, with the digital renminbi being in development since 2014. It has been tested in multiple cities, and was used at the Winter Olympics with some success. However, the nature of China, with its strict restrictions on capital exports, as well as strict restrictions on everything else, meant that its reasons for creating a so-called Central Bank Digital Currency didn’t really apply to more open countries.

(Incidentally: when I worked at Reuters we had special stickers on our desks to remind us to make sure we hadn’t mixed up billions and millions, but we regularly did it anyway. On which note, ouch, I’m glad that correction wasn’t one of mine.)

But gradually, Western countries have begun issuing their own proposals, which suggests they too think it’s finally time at least to consider how to push back against privately backed currencies like Bitcoin. Last year, the Federal Reserve issued a consultation paper on a digital dollar, and announced that its prototype was performing well in initial tests. The European Central Bank had already issued a report on its own plans for the e-Euro, although (as with many ECB reports) it took many words to say very little.

  • “Looking ahead, we need to be ready to introduce a digital euro, shall the need arise. For now, we maintain the options open as to whether and when this should happen.” Thanks for that, Christine Lagarde, I’m glad you could join the call.

And last week the Bank of England weighed in, with a consultation paper on what it appears to be non-ironically referring to as the “Britcoin.”

I am interested in this because physical banknotes are central to the global criminal economy, and I am fascinated by how Western central banks have been issuing ever-larger volumes of them, despite the fact the legitimate use of cash money is falling everywhere, without anyone asking where they’re all going. 

Seriously, it’s amazing. Last month there was $2,299,897,000,000 worth of Federal Reserve banknotes outstanding, up from $1,160,082,000,000 worth in January 2013, and no one has stopped to ask why the world needed twice as many dollar bills (most of which are in the $100 denomination) in the same decade when Americans’ cash usage dropped off a cliff.

So why do people want to have banknotes at a time when they don’t want to use banknotes? The ECB has thoughts.

  • “This seemingly counterintuitive paradox can be explained by demand for banknotes as a store of value in the euro area (e.g. euro area citizens holding cash savings) coupled with demand for euro banknotes outside the euro area,” it concludes here, which is to say people want banknotes because people want banknotes. With insights like that you can see why they get paid the big euros.

The appeal of banknotes to criminals is obvious — they’re anonymous and almost universally accepted — and my theory is that, as anti-money-laundering restrictions have become increasingly onerous, more criminals have opted out of the financial system, and are instead using cash as part of an elaborate Informal Value Transfer System instead. Euros and dollars in particular have become the fuel for globalized criminality.

If Central Banks replace physical cash with Central Bank Digital Currencies, that model would be threatened, and criminals would have to find a new — and, presumably, less convenient — way to legitimize their earnings. So, now we have all these consultation documents, is this part of the vision? The Bank of England says it intends to have banknotes and the new digital form of sterling operating in tandem, but there is an intriguing snippet which would surely alarm money launderers. Although actual Britcoin usage would be anonymous, creating the mechanism to access it would not.

  • “You would access the digital pound through a virtual wallet and you would have to share some personal data with your wallet provider. This is because you would have a commercial relationship with your provider and they would require some form of ID in order to prevent financial crime or fraud,” the Bank of England’s FAQs says.

The Federal Reserve seems to be coming at this from the same angle.

  • “Any [Central Bank Digital Currencies] would need to strike an appropriate balance between safeguarding consumer privacy rights and affording the transparency necessary to deter criminal activity,” it said in its own document this time last year.

The European Central Bank has also considered this issue and has an interesting suggestion about putting limits on the usage of digital euros outside the eurozone.

  • “The cross-border circulation of a digital euro might facilitate international criminal activities, if not properly controlled,” it states (thereby proving that its analysts are actually capable of writing in a comprehensible manner, and begging the question of why they don’t do so the rest of the time).

Like I said, one of the reasons princes have always monopolized coin issuance is because it is lucrative, and that is thanks to seigniorage, the profit available from issuing currency. In the old days, seigniorage was the fee a prince’s mint charged for guaranteeing the purity of bullion; but these days, it is any profit made from issuing currency. The Federal Reserve, for example, makes slightly more than $99.90 in profit every time it prints a $100 bill, which is after all only valuable because the Fed says it is. There are currently about $1.4 trillion worth of $100 bills in circulation, from which the Fed earned around $1.39 trillion in seigniorage.

If Bitcoin, Ethereum or another privately-run digital currency became actually successful, then that seigniorage income would be threatened, but if Central Bank Digital Currencies take off, the opposite would happen. Central Bank Digital Currencies would cost even less to issue than banknotes, making issuing currency even more lucrative. In the digital future, there are no banknotes to print, replace, store or design; just ones-and-zeroes, which miraculously become valuable because the Central Bank says they do. These are interesting times, and this is a space worth watching.


Thanks to John Cusack, editor of Financial Crime News, for getting in touch with some thoughts about Suspicious Activity Reports. For the last couple of weeks’ newsletters, I’ve been musing about SARs, and about whether it is good or bad that a country generates a lot of them. I didn’t come to a conclusion but did say it was bad that the U.S. and U.K. have so few employees in their Financial Intelligence Units, because it means the units are unable to read all the Suspicious Activity Reports they receive.

Thanks to Cusack’s data, I can see that the Netherlands should join them on the naughty step, since it has only 76 employees to process 1.1 million SARs, giving the Dutch a ratio of 14,474 SARs per employee per year, which is even worse than the Brits or Americans.

But wait a minute, what’s this, a little further down Cusack’s helpful spreadsheet? Russian intermediaries generated a scarcely-credible 17.7 million SARs in 2018 meaning that, despite its FIU employing a colossal 800 people, it had an even-more dramatic ratio of 22,125 SARs per person. If those Russians were working the standard 260 days a year, and eight hours a day, that means they would need to get through more than 10 SARs every hour just to prevent them backing up.

This surely puts to bed the question of how much significance we should place on the size of a country’s financial intelligence unit, or the volume of SARs it generates, when we’re trying to work out how clean its economy is. Russia scores at the top of the class on both measures, and its economy is a slew of filth, so the answer is none.

So what actually is a useful metric for measuring financial crime? Or, if there isn’t one, how should we create one? Send me your thoughts, please!


It’s become a bit of a cliché to point out that tax havens are no longer sunny places for shady people like they once were, but instead these days more closely resemble South Dakota, Ireland and Delaware. Like all clichés there is some truth behind it, but the United Arab Emirates is doing its very best to make sure we don’t forget that warm places can still be dodgy too.

The UAE’s Central Bank has issued a license to MTS Bank, the fintech wing of Russia’s largest mobile network, which is controlled by the Sistema conglomerate. Vladimir Yevtushenkov responded to being sanctioned last year by the U.K., Australia and New Zealand, by handing 10% of the shares in Sistema to his son, thus bringing his stake below half, but he still owns 49% of the group.

Dubai, along with Turkey, has seen opportunity in wealthy Russians being squeezed out of their favored Western haunts, and provided a haven for tens of thousands of individuals (and their wealth) since the Ukraine crisis began a year ago.

That is an alarming thought. Russians had already been pouring money into Dubai real estate, and the presence of a Russian financial institution will make that easier. A lot depends on the response of the U.S. and other Western allies. U.S. officials have said they are watching Dubai closely but, as of now, there haven’t been any secondary sanctions. If the UAE can play, as a home for oligarchic wealth, the same role that India has played as a home for Russian oil, then Western sanctions will be ever-less-useful.

Of course, we need to remind ourselves that questionable wealth is not only from Russia, and corruption allegations did not begin with the Ukraine crisis. As such, it’s worth checking out this bit of open-source wizardry from Bellingcat. Intrigued by the whereabouts of Isabel dos Santos, once Africa’s richest woman but now target of an Interpol red notice, its investigators took a look at her social media posts to see if they could figure out where she was passing her time. The answer that they came up with may surprise you, but probably won’t.


I was lucky to get hold of an early copy of “Who Gets Believed?” by Dina Nayeri, which I really enjoyed. It’s got that amazing combination of being a book which is both deeply personal, and of wide significance, and looks at why it is that some people’s stories are doubted, and some people’s aren’t. Look out for it.