The Governor of the British central bank, the Bank of England, Andrew Bailey, has announced to the World Economic Forum that crypto, stablecoins, and digital currency projects are yet to “land” on the expected design and governance standards for “a lasting” digital economy.
Bailey, who was appointed head of the bank in Spring last year, acknowledged that exiting digital assets had shown commitment in terms of “digital innovation for payments, especially cross-border payments,” but hinted that crypto and other digital tokens were not the answer for the broader financial system.
Bailey asked, rhetorically: “Have we landed on the design, governance for a lasting digital currency?” – with his answer a firm “no.”
His comments came during a panel session entitled “Digital Currency Governance Consortium, and Reimagining Regulation: Pathways to Digital Currency” as the economic forum – usually held annually in Davos, Switzerland this year taking place online due to the ongoing coronavirus pandemic.
During the session, Bailey was asked where national regulators could hope to begin with crypto and digital token regulation given their global, stateless nature.
The Governor replied that when it comes to any form of regulation, policy chiefs are required to “begin by defining where the public interest lies.”
He classified the following as key areas of interest for individuals and businesses when dealing with digital finance:
- the stability of [tokens’] value
- ensuring the authorities can tackle financial crime [involving tokens]
- privacy standards – striking a balance between ensuring users’ privacy and the benefits of lower costs for transactions
He added a warning, saying,
“Don’t think [technological innovation] comes before the public interest.”
He also believes that the public was likely not divided on privacy-related matters, although other panelists claimed this was not necessarily the case.
Old fears and old models
The panelists spoke in the wake of comments made by Janet Yellen, the incoming American Treasury Secretary. Her recent comments about crypto being used to fund crime sparked furious debate in the crypto world.
Elizabeth Rossiello of AZA Finance and the CEO and Founder of BTC Africa, who also moderated the session, claimed that Yellen had given voices to “old fears” about crypto’s role in international money laundering and terrorism funding.
(According to Chainalysis, the criminal share of all cryptocurrency activity fell from 2.1% (USD 21.4bn) in 2019 to 0.34% or USD 10bn in transaction volume in 2020.)
And her skepticism about crypto’s role in the crime was echoed by Glenn Hutchins, the Chairman of North Island and a board member of the Federal Reserve Bank of New York, who claimed that crypto could not hold a candle to cash when it comes to funding crime.
Tokens like Bitcoin (BTC) “leave a permanent audit trail” and “footprints that are inalterable” for criminals, unlike cash, Hutchins added.
The North Island supremo also poured scorn on those who would seek to drive a wedge between blockchain and protocols like the Bitcoin network.
He said that the two were “inseparable,” and talking about networks without mentioning their proprietary tokens was “like talking about a car battery and not an internal combustion engine” on a car.
But even Hutchins acknowledged that regulation was now required. He said,
“[Digital currencies] need to work inside a regulated environment, but regulators also need to create a set of regulations that fit this new industry. We can’t take the old regulatory model and put it on top of this.”
Western Union’s CEO Hikmet Ersek, also attending, concurred, saying that digital currencies “have to be regulated,” opining that regulation would benefit “consumers and people, as well as companies” like his own.
He added that “regulation and innovation” were not different and would ultimately help with “protecting consumers.”
History and the future
Meantime, Queen Máxima of the Netherlands, who has also worked as the UN Secretary-General’s Special Advocate for Inclusive Finance for Development since 2009, believes that parallels could be drawn between her own nation’s history and recent efforts to launch global stablecoin.
She stated that the Bank of Amsterdam (1609-1820) and its currency, the guilder, functioned much as stablecoin when it was founded by traders in the 17th century when Currencies from all over the world flooded northwestern Europe.
She pointed out that the guilder provided liquidity and stability and pointed out that the Bank of Amsterdam’s intelligent governance initially allowed the guilder to “build trust” in the coin, both in the Netherlands and elsewhere.
She warned that the bank ultimately failed with its project as it became overly “chummy with traders and overstretched.” Thus, she added, the gilder ultimately faded into the pages of history, with the pound sterling eventually surpassing it and the Bank of Amsterdam folding in the early 1800s.
Digital currencies, the monarch said, “need some kind of fiscal backing, as this is where the gilder failed.”
There were hints that royal approval of crypto might one day arrive, with the Queen agreeing that digital currencies were “very much part of the future.”
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