The Bank of England, much like many other central banks across the globe, is currently mulling over best practices to handle the various influx of digital currencies that are increasingly becoming more prominent.
Payment and financial companies are viewing pirate cryptocurrencies and stablecoins as a viable option to increase the speed of transactions, whilst central banks have favoured developing central bank digital currencies (CBDCs) as a means to act on the growing digital asset economy.
However, despite digital currency growth showing no signs of slowing down, regulations and policies attached to the sector are scarce at the moment, leading to cryptocurrency often being labelled with a ‘wild-west’ stigma.
Recently speaking to Martin Wolf, Chief Economics at The Financial Times, former Bank of England Governor, Sir Mervyn King, believes there is no appetite at the moment in the UK for crypto regulation as it would impact investors in the industry.
He said: “The ability to make digital transactions is central to the development of the economy. But I don’t think that requires private or central bank digital currencies.
“Digital currencies themselves, like Bitcoin, Tether and so on, I would not regulate them because I think the danger with that is that it appears that the regulator is giving comfort to those who invest in them.
“We should simply point out to people that if you go down to the bookmaker one afternoon and bet on a horse, you win or lose you, don’t expect to be compensated for that if you lose, and the same is true of digital currencies.”
Like King mentioned, there is still trepidation regarding investing in crypto and digital assets due to the volatility of the market, which came to a head in 2022 with two high-profile crashes that set about a market crash that it has only just recovered from in the last year.
King drawing parallels between crypto investing and betting is not an uncommon comparison and has been made before by Conservative MP Harriet Baldwin, who called for the digital asset sector to fall under the same rules and guidelines as the gambling industry.
While King appeared to be dismissive of private cryptocurrencies, he seemed more open to the idea of stablecoins but remained on the fence still, believing consumers and businesses should treat them like “Scottish bank notes”.
He explained: “Stablecoins are different. Stablecoins purport to be dollars or euros or whatever and we should treat them like Scottish banknotes. Banks in Scotland can issue their own sterling bank note, but we insist at the Bank of England that they back them one for one the whole time with English bank notes.
“And that’s what we should do with stablecoins. We should force stablecoins to be backed one for one with holdings of dollars, euros, sterling.”
Does the UK need a CBDC?
Often criticised by the crypto sector as a vehicle to stifle innovation, CBDCs are growing in interest, particularly from global policymakers who deem crypto and digital assets too risky of an investment.
The UK, like many other countries, has developed its own CBDC, the Digital Pound, for which King revealed the Bank of England has a wholesale CBDC in its reserves, but is a lot more hesitant on the usage of a retail Digital Pound.
He shared: “Central bank digital currencies, we already have one at the wholesale level. It’s in reserves with the central bank.
“And at the retail level, I don’t think this makes any sense. Either because most of the transactions I make with my private bank, I do by going online to make a digital transaction take effect immediately.”
Discussions around a potential retail Digital Pound have been intensifying recently, with conversations starting to mount whether this form of digital currency has offline payment capabilities.
According to new research from the Bank of England, findings showed that there will have to be “tarde-offs” in order to implement offline functionality, which the central bank cited changes to user experience and preventing double spending that could make implementation “challenging”.
The former Bank of England Chief has his thoughts on what he believes the UK central bank should be focusing on as opposed to a retail CBDC, highlighting cross-border payments and the lack of regulation surrounding it.
“What we ought to be doing is trying to make the payment system more competitive and cheaper and the biggest thing we need to work on is cross-border payment systems where the cost of doing that is very high, but in part that’s because of regulation,” said King.
“I find enormous difficulty making payments from the US to the UK just because of the bureaucracy you have to go through and the time it takes. But it’s all due to regulation.”
