BOE Governor Advocates for Advanced Digital Currency, Disparaging Crypto and Stablecoins

In a recent address, Andrew Bailey, a governor at the Bank of England (BOE), delved into various topics concerning financial stability, including inflation control and maintaining public trust. However, his focus shifted towards cryptocurrencies, dismissing them as not being a form of money and expressing a preference for what he termed “enhanced digital money.”

Bailey referred to recent bank failures in the United States and Switzerland, highlighting concerns related to the singleness of money and settlement finality. Without delving into specifics, he contended that both cryptocurrencies and stablecoins fail to meet the basic criteria for singleness and settlement finality. “They are not money,” Bailey asserted, although he noted that the passage of the Financial Services and Markets Act could align stablecoins with regulatory standards.

According to Bailey, existing digital money, which is entirely stored in IT systems, could be enhanced to encompass a broader range of executable actions. This includes the inclusion of contingent actions within smart contracts. He further emphasized that a central bank digital currency (CBDC) would also fall under the category of enhanced digital money. While Bailey acknowledged that well-designed enhanced digital money need not be exclusive to central banks, he highlighted the advantages offered by a CBDC.

Bailey outlined that the primary motivation behind a retail CBDC would be to ensure the singleness of money, allowing the public to rely on fully functional central bank money for everyday transactions. However, he held a different perspective on wholesale CBDCs. With the recent upgrade of the BOE’s Real-Time Gross Settlement (RTGS) system, Bailey stated that integrating central bank digital money in RTGS through tokenized transactions would be the most efficient and expedient approach, seemingly dismissing the need for a wholesale CBDC. He also mentioned that physical cash would continue to be a part of the financial landscape.

In conclusion, Bailey’s speech underscored his preference for enhanced digital money over cryptocurrencies and stablecoins. While acknowledging the potential of digital currencies, he emphasized the importance of singleness and settlement finality, indicating that central bank digital currencies could be the ideal solution.

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