Central banks will achieve one of the most significant monetary breakthroughs in centuries should they manage to establish digital versions of their existing currencies, according to Andrew Bailey.
The governor of the Bank of England said yesterday that the prospect of digital pounds and pence — an idea that has been dubbed “Britcoin” — would herald a new era for finance.
Speaking at the launch of an innovation hub with the Bank for International Settlements, Bailey, 62, said: “I am very encouraged by progress on that front. I am very encouraged that we are getting to grips with what is a critical innovation. If this comes to pass, it will be one of the most fundamental innovations in the history of central banking. It will move us into a new era.”
The Bank is not alone in considering a central bank digital currency. While possibly underpinned by the blockchain technology used by cryptocurrencies, such as bitcoin and ethereum, it would be pegged to sterling and therefore less volatile. China has been testing a digital yuan, while Janet Yellen, the US Treasury secretary, has signalled tentative support for a digital dollar. Proponents have said that such currencies could speed up payments and would boost the availability of financial services to those on lower incomes.
As interest in digital assets among investors, consumers and companies continues to grow, other countries are taking an alternative approach. This week El Salvador voted to make bitcoin, the world’s largest digital currency, legal tender. It is set to become the first nation to do so.
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A leading central banker appeared to raise questions about the decision, which has been hailed by El Salvador’s government as a means of bringing “financial inclusion, investment, tourism, innovation and economic development” to people in country.
Benoît Coeuré, head of the innovation hub at the Bank for International Settlements, said that it was an “interesting experiment indeed” while listing the concerns of his institution, which is based in Switzerland and is called the central bank for central banks.
“We have been clear at the BIS that we don’t see bitcoin as having passed the test of being a means of payments,” Coeuré, 52, said. “Bitcoin is a speculative asset and should be regulated as such.”
His remark came a day after the International Monetary Fund, a key economic backer of El Salvador, suggested that the country’s decision raised “a number of macroeconomic, financial and legal issues” that would need to be worked through.
President Bukele of El Salvador has talked up bitcoin’s potential as a means of assisting citizens who live overseas to send money home. His plans received approval from members of Congress, receiving 62 out of a possible 84 votes, despite concerns over their possible impact on support from the International Monetary Fund.
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Bitcoin was created by a secretive software developer using the name Satoshi Nakamoto in 2008 and has no physical form. The main use of the cryptocurrency has been speculative trading. The BIS is establishing a network of innovation hubs to allow central banks to share information on new payments technology and to keep up with projects in the private sector, such as Facebook’s diem stablecoin.
