The Bank of England’s (BoE) Governor, Mark Carney, has cautiously embraced blockchain innovation in a speech given this morning to the Scottish Economics Conference at Edinburgh University.
Entitled The Future Of Money, Bank Of England governor Mark Carney’s speech to the Scottish Economics Conference today began by covering the history of money and how its structures came to be, before looking at how new FinTech innovations – both in terms of currency, like Bitcoin et al, and blockchain-based operations – could change the way banking and business works, both behind the scenes and in terms of public use. We digested his words here.
The most interesting part of his speech, however, involved floating the idea of a Central Bank Digital Currency (CBDC) for the UK. What’s more, it would appear that this idea is more than a pipe-dream.
Carney was largely dismissive of the current crop of cryptocurrencies, saying that they “act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users,” before concluding that they are, in short, “failing” to fulfil the traditional role of money and their chances of replacing it are “tenuous at best”.
He also opined the deflationary pressures widespread adoption of fixed-supply cryptocurrencies like Bitcoin would have on the world economy, saying “far from being strengths, the fixed supply rules of cryptocurrencies such as Bitcoin are serious deficiencies… If ‘those who cannot remember the past are condemned to repeat it’, recreating a virtual global gold standard would be a criminal act of monetary amnesia.”
However, soon after, after saying that “crypto-assets are part of a broader reorganisation of the economy and society into a series of distributed peer-to-peer connections”, he began to ponder whether “their infrastructure could be combined with the trust inherent in existing fiat currencies to create a central bank digital currency.”
It would appear that his musings were not just idle thoughts, either, as he immediately went on to add that the BoE has, right now, “an active research programme dedicated to it.”
This, of course, begs the question: how far down that research road is it? Little on that from was given away by Mr. Carney this morning but, as the mouthpiece for the BoE, his mentioning it in such a key speech surely implies that it can be considered an important project going forward. It also shows how seriously authorities are now taking crypto developments, and innovation in the area is – in his words – “throwing down the gauntlet to the existing payment systems.”
Whether such a CBDC will come into being will depend on “a series of big policy questions,” and could mean “a much greater role for central banks in the financial system” according to the Governor. They also should not be “a solution in search of a problem or an effort of central bankers to be down with the kids.”