Bank of England Governor Andrew Bailey has cast doubt on the need for a digital pound for everyday consumers, but notes that it will still have value for wholesale transactions.
Speaking at a conference in Kyiv on Friday (20 June), Bailey said he sees crypto as taking two forms:
- Unbacked assets of the Bitcoin sort;
- Backed assets of the Stablecoin sort.
“I think it helps to see these two as distinct. Why? The Bitcoin sort does not have the characteristics of money – critically, it does not purport to maintain nominal value, and thus fails the test of the singleness of money. Instead, it is an investment asset, with no real asset backing, and volatile in price,” he said.
“It’s a risky investment class and should be seen as such. The buyer should beware – so-called caveat emptor applies. Stablecoins are different because they purport to have the characteristics of money and to be usable as such. There is nothing wrong with this, but to pass the test they must provide assurance of nominal value and pass the test of singleness of money.
“That is perfectly possible to achieve, though I would observe that many of the current versions do not quite achieve that test, not yet at least. In my view we should focus our attention on standards for stablecoins which ensure they do pass the test.”
A Britcoin for everyone?
While the Bank of England is currently working on a digital pound project – a so-called ‘Britcoin’, he noted that this is primarily aimed at wholesale use cases and would is unlikely to be necessary for everyday consumers.
“My second thought in the area of the evolution of forms of money concerns so-called digital currency. What do we mean by this term? After all, money – in the form of central bank reserves – has been digital in form for many years. I think we mean, how do we get the benefits of new digital technologies in the area of payments – where money is a medium of exchange?
“For instance, how do we get the benefits of smart contracts in payments, and the benefits of using digital technology to fight fraud? I start with the presumption that there should be benefit here – it seems like a failure of imagination if we think otherwise. That said, I remain to be convinced that we need to create new forms of money – such as Central Bank Retail Digital Currency – to achieve this.”
“By the way, the word retail is important here – we are well on the way to having wholesale central bank digital money, but that is just a natural step on from the wholesale electronic money that we have had for thirty years in our case.”
Bailey noted that most payments today are made in commercial bank money. Logically, then, if there are real benefits to digital technology in payments, we should want to see them in commercial bank money, he said.
“The buzzword here is tokenised deposits – a bit of a mouthful, but really it is the application of digital technology to the form of money that we have today.
“The challenge is to apply this to both domestic and cross-border and cross-border currency payments. To be clear, I am not against stablecoins, but they do have to meet the test of singleness of money. I am not against Central Bank Retail Digital Currency, but I question why it is needed if innovation proceeds as I think it should.
“That said, you may detect from what I have said that I do think commercial banks need to step up to the challenge of digital money provision,” he said.
You can read Bailey’s full speech here.
Leave a Reply