Nikki Matthews

Senior Consultant

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LCP clarity:

In an economy increasingly turning to digital, it’s important to keep up-to-date with the latest developments.

LCP insight:

If govcoins are introduced, investors should assess how digital currency will affect the sectors they have exposure to.

Money makes the world go round

How exactly? Well, it’s vital to the operation of most economies these days. It’s used as a medium of exchange and a store of value. The latter is up for debate as this is not uniform in all countries across the world. Unlike in the UK, where inflation has largely vanished (at least for now), in Venezuela inflation exceeded 2000% in 2020 eroding the ‘real’ value of money.

Acceptance is crucial for money to be used as a form of payment. So just exactly what constitutes money? We’ve come a long way: from exchanging cattle to contactless credit cards and even using our smartphones to make payments. However, did you know fiat money (currencies not backed by an asset) only started in the 1900s, with a permanent move away from the gold standard occurring in the 1930s in the UK?

Key Characteristics:

A means of exchange, a defined unit of account; and a measure and store of value

Is digital currency next?

Bitcoin and other cryptocurrencies have certainly attracted a lot of investors, with an estimated 20% of the UK population owning cryptocurrencies at some stage.

The UK Government is looking at whether there is a role for a digital currency issued and regulated by the Bank of England. The value of the currency would be directly linked to the pound sterling and therefore fit for purpose as a store of value. Conversely, Bitcoin and most other well-known cryptocurrencies are not backed by any currency or asset. ‘Britcoin’ (the nickname for the future digital pound) would therefore not be subject to the great volatility and uncertainty of other cryptocurrencies.

Businesses and households would be able to use Britcoin to make payments, but the mechanics of how the system will work are yet to be determined; would Britcoins be transferred from a digital ATM to a newly developed Britcoin card, to a smartphone or both?

The UK currently plans for Britcoin to coexist with paper cash; however, this could be the first step towards a cashless society. If you think about it, in the last year how often have you used cash; do you remember the last time?

Cash use has been on a steady decline with the Covid-19 crisis only accelerating it. Only around 20% of payments pre-pandemic were made using money in the form of cash, down from 50% ten years ago!

Most of us don’t have huge stocks of cash lying around and instead use credit and debit cards: ‘commercial money’. There is confidence that we could exchange the value in our bank account for paper cash if we really needed to. So, if Britcoin materialises, and cash as we know it becomes extinct, we would need to move to a system where we have full confidence in digital – this would certainly need to be secure.

Some countries are further along. China has been looking at launching the e-Yuan for some time and has already started user trials. In Sweden, a country at the forefront of fintech, a small number of its population have a microchip implanted in their hand, storing data such as bank cards, which makes it possible to pay by waving!

How could this impact investors?

"It could be possible that countries that do not launch digital currencies are regarded as less valuable or accessible in the future which could have implications for their value."

Nikki Matthews

Senior Consultant

This could also have wide-ranging implications for retail, redesigning shops to look more in line with Amazon’s ‘Go’ stores that allow you to shop and leave the store, using cameras and sensors to determine the items you’ve taken, then automatically charging your Amazon account without you needing to pay at checkout. This does also mean a lot fewer employees would be needed in a number of sectors.

What are the benefits of digital currencies?

  • Improve access of central bank money
  • Facilitate cross-border payments
  • Payments could become more competitive with transaction costs for businesses potentially reducing, either through better technology or by enhancing competition
  • Avoids liquidity costs – currently, there is usually a few days lag for money to settle when paying by card, this could be eliminated by offering real-time settlement
  • It could make it harder for money laundering to take place as it should be possible to track the movement of digital Britcoin – this could add to economic growth as it would be harder for ‘black markets’ to continue to exist or for tax to be evaded.


Bitcoin has a bad reputation when it comes to energy consumption. The government is looking into the technology it should use – luckily there are significantly more efficient types of technologies available.

G7 Finance Ministers and Central Bank Governors emphasised that energy efficiency should be a core consideration for any central bank currency design.

We live in a society where digital is increasingly becoming the norm, just think of all the inventions you use daily that didn’t exist 20 years ago – Netflix, Amazon shopping, Uber, perhaps central bank digital currency is overdue.

Hear more from Nikki Matthews on the Investment Uncut Podcast series

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