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Two years on from Bank of England Governor Mark Carney saying that cryptocurrencies and digital tokens were “failing” as money, the Bank has co-founded a working group on adopting central bank digital currencies (CBDCs).
According to an announcement from the BofE, it, the Bank of Canada, the European Central Bank, the Bank of Japan, the Sveriges Riksbank, the Swiss National Bank, and the Bank for International Settlements – the central banks’ global clearing house – have formed the group to share experiences and use cases and evaluate the potential for adopting CBDCs.
The new group will also assess “functional and technical design choices, including cross-border interoperability, and the sharing of knowledge on emerging technologies”.
Its structure suggests that members see cross-border interoperability and exchange as being the key function of digital tokens, as a bridge between fiat or asset-backed currencies.
It will closely coordinate with relevant institutions and forums, including the Financial Stability Board and the Committee on Payments and Market Infrastructures (CPMI).
The group will be co-chaired by Benoît Cœuré, Head of the BIS Innovation Hub, and Jon Cunliffe, Deputy Governor of the Bank of England and CPMI Chair, and include senior representatives of the participating institutions.
The Bank of England’s Carney is due to step down from the Governor role in March this year. In March 2018, he gave a speech in Edinburgh saying that cryptocurrencies and digital tokens were failing as money and were largely held by speculators.
In that speech, he said: “Money is a social convention. We accept that a token has value whether made of metal, polymer, or code because we expect that others will also do so readily and easily.
“The answer has to be judged against the functioning of the entire cryptocurrency ecosystem, which extends beyond the currencies themselves to the exchanges on which cryptocurrencies can be bought and sold, the miners who create new coins, verify transactions, and update the ledger, and the wallet providers who offer custodian services.
“The long, charitable answer is that cryptocurrencies 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. The short answer is they are failing.”
He was not alone in making criticisms that year. Digital tokens are “not scalable and are more likely to suffer a breakdown in trust” as they grow, said the BIS’ 2018 annual report, which warned that central banks should consider the serious risks to the global financial system of issuing CBDCs.
BIS General Manager Agustin Carstens once described bitcoin as “a combination of a bubble, a Ponzi scheme, and an environmental disaster”, with the latter referring to the cost per watt of mining for cryptocurrencies – which is critical to establishing a digital currency’s real value – and the environmental impact of that energy use.
Unless pegged to a national or fiat currency, or to an asset, digital tokens are backed by nothing more than depreciating computer hardware and network members’ trust, so the concept of tokenising the dollar and other globally accepted currencies is gaining ground.
The formation of the new working group comes in the wake of Facebook’s announcement last year that it intends to launch the Libra stablecoin, either as a tokenised dollar or as a cross-border exchange token.
Those plans caused the ECB to warn of potential havoc in the world’s financial system if an advertising- and user-data-focused company with billions of network users were to launch its own currency or cross-border exchange mechanism.
China is also believed to be readying a national digital token.
- Vodafone became the latest company to walk out of the Libra coalition this week – the eighth corporate loss to Facebook’s digital currency programme after Mastercard, Visa, eBay, Stripe, PayPal, Mercado Pago and Bookings Holdings quit last year.