In a recent speech, Bank of England (BOE) Governor, Andrew Bailey, expressed his preference for ‘enhanced digital money’ over crypto and stablecoins. The central bank governor highlighted the importance of the singleness of money and settlement finality, noting that cryptocurrencies and stablecoins fail to meet these criteria.
Bailey emphasized the need for a retail Central Bank Digital Currency (CBDC) to promote the singleness of money and ensure that the public always has access to fully functional central bank money for everyday transactions.
Vision For Enhanced Digital Money
During his speech, Bailey referred to recent bank failures in the United States and Switzerland, which revealed challenges related to the singleness of money and settlement finality.
While he did not provide specific details, Bailey stated that crypto and stablecoins do not meet the fundamental tests of singleness and settlement finality. He acknowledged that the passage of the Financial Services and Markets Act would help regulate stablecoins and align them with existing financial regulations.
Bank of England Governor Andrew Bailey says inflation is likely to drop “markedly” this year and that the full impact of rate increases has yet to hit the economy https://t.co/kntdoEKYPr
— Bloomberg Economics (@economics) July 10, 2023
Bailey further outlined his vision for ‘enhanced digital money,’ which he described as existing entirely within IT systems but with the potential to support a broader range of executable actions. He emphasized the concept of smart contracts, enabling contingent actions and programmable functionalities within digital money systems.
He also suggested that both retail CBDCs and other forms of enhanced digital money could be developed beyond the scope of central banks.
The BOE Governor noted:
There is no reason that I can think of which makes well-designed enhanced digital money the sole preserve of central banks. Our main motivation for a retail CBDC would be to promote the singleness of money by ensuring that the public always has the option of going into fully functional central bank money that can be used in their everyday lives.
Wholesale CBDCs And The Role Of Cash
While Bailey expressed support for retail CBDCs, emphasizing their potential to enhance the singleness of money for everyday transactions, he held a different view when it came to wholesale CBDCs.
In his speech, Bailey highlighted the BOE’s recent upgrade of the Real-Time Gross Settlement (RTGS) system, which positions the bank favorably to integrate central bank digital money with tokenized transactions. This approach offers improved speed in the digital payment ecosystem.
Despite the advancements in digital currencies, Bailey also acknowledged the enduring role of physical cash in the financial system. He emphasized that physical cash would continue to play a significant role alongside the rise of digital currencies.
Bailey’s remarks suggest that while the BOE recognizes the potential of CBDCs, they also recognize the importance of maintaining a balanced and inclusive financial system that accommodates both digital and physical forms of money.
Particularly, Bailey’s stance reflects the BOE’s focus on leveraging technology to enhance the efficiency and effectiveness of financial transactions. By supporting the development of retail CBDCs and embracing the integration of central bank digital money with tokenized transactions, the BOE aims to foster the payment ecosystem.
At the same time, the BOE recognizes the need to ensure that physical cash remains accessible and relevant for individuals and businesses who rely on it for their financial needs.
Regardless of the BoE Governor’s crypto criticism, the crypto market has seen an upward trend in the past day. Specifically, over the past 24 hours, the global crypto market capitalization has surged 0.7% with a current market valuation of $1.226 trillion
Featured image from Bloomberg, Chart from TradingView
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