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Bank of England is for Stablecoin and CBDC, but Says ‘Bitcoin Has No Connection at All to Money’

In a virtual conference, the governor of the Bank of England Andrew Bailey shared his views on Bitcoin and said that the cryptocurrency “had no connection at all to money.”

Though the central bank governor appeared to disfavor Bitcoin (BTC) as a payment method, he did reiterate that there were many benefits to adopting central bank digital currencies (CBDCs) and stablecoins.

Bitcoin dismissed by Bank of England

In his virtual speech, the governor expressed his views on cryptocurrency assets and used BTC as an example. Regarding the virtual currency, he said:

“They have no connection at all to money. They may have extrinsic value – you may like to collect them for instance, and as such they are a highly risky investment opportunity. Their value can fluctuate quite wildly, unsurprisingly. They strike me as unsuited to the world of payments, where certainty of value matters.”

Stablecoin benefits

Though the governor appeared to disfavor Bitcoin, he was quick to reiterate that stablecoins, on the other hand, could offer useful transacting advantages, such as “reducing frictions in payments” by increasing efficiency and speed of transaction at a low cost. He added that stablecoins offered increased convenience as well, as payments could be done digitally and remotely, in a regulated manner.

In Bailey’s opinion, if stablecoins and CBDCs could co-exist in the same ecosystem, the benefits of both could be leveraged to provide customers with an integrated financial framework that would take technological innovation to the next level. The central bank governor hinted that a strategic digital infrastructure combining both CBDCs and stablecoins may be beneficial to the country, and there “will likely be a role for the private and public sector working together in the future of payments.”

Are there cons to adopting digital currencies?

The governor also said that there may be trade-off with leveraging a digital currency on a blockchain. He raised the question of privacy, saying that digital currencies “provided considerable information on how people spent their money,” depending on the established design backing it. Bailey elaborated:

“Digital payments could entail greater data on users’ identities and transactions being centrally visible. The data generated could have huge opportunities for the detection and prevention of financial crime, but this must be balanced with the risk of surveillance into private financial matters.”

Who is ahead for CBDC issuance?

When it comes to deploying its own CBDC, the Bank of England has been a bit slow in the development phase, adopting a more precautious stance than its counterparts China and Japan.

China, on its end, has been planning to implement the CBDC experimentation phase in wealthier cities of China first, such as Beijing, Tianjin, Hebei province, and the Greater Bay Area. China’s central bank digital currency is also known as digital currency electronic payment (DCEP).

Bahamas Ranks First as The Country with Most Advanced Retail CBDC Development

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Bahamas and Cambodia are the two countries with most advanced central bank’s retail digital currency projects, according to a news report released by PwC (PricewaterhouseCoopers accounting firm).

Despite China being regarded as the most advanced nation in its CBDC development, it is ranked third in terms of the maturity of its retail CBDC projects.

The report shows that the Bahamas, with its Sand Dollar, is the nation with the most advanced retail CBDC. As of last year, all Bahamas residents can now access the currency’s digital wallet through a physical payment card or a mobile application.

Cambodia becomes the second in retail CBDC because its CBDC project is already live.

China ranks third because its project is still in the testing phase, the PWC report said. The country has not disclosed the estimated launch of the project and not all citizens can access the currency.

However, this is not to say that China’s digital yuan won’t be the most impactful CBDC once it is fully launched. The country’s economy is known as the second largest in the globe while Bahama is the 130th.

As per the PwC report, CBDCs are classified into two types: interbank and retail. A retail CBDC can be directly held by citizens and is utilized as a digital form of money as a complement to physical cash. On the other hand, an interbank CBDC is restricted for use by financial institutions for financial settlement process and interbank payments.

The report stated that more than 60% of central banks are conducting research on digital currencies, with retail projects more active in emerging economies given the significance of financial inclusion, while interbank or wholesale application appears to be more dominant in advanced economies.

The PwC report identified that only 23% of retail projects have reached the implementation stage, while almost 70% of wholesale projects are conducting pilot programs.

With regards to interbank or wholesale projects, China and Thailand tied for the top ranking, followed by Singapore, Canada, and the UK.

Central Banks Response to Crypto Revolution

Central banks’ efforts to launch digital currencies accelerated for the first time when the popularity of Bitcoin significantly increased and the Facebook-backed Libra project (currently known as Diem) was announced.

Other nations are becoming worried about China’s progress with its digital currencies, including the US. Last year, the Bank of Japan stated that one of its major reasons for expediting research into its national digital currency was the perceived threat of China’s digital yuan.

While China is in the trial phase for its digital yuan, other nations have accelerated their efforts. Economies such as the European Union and Sweden are actively exploring their CBDC projects. However, the US Federal Reserve has indicated that it is not in a rush to launch a digital dollar.

Recently, a senior official from China’s central bank said that China’s goal is in establishing a digital yuan is to internationalize its currency and promote its domestic use, but not to replace the US dollar.

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National Bank of Georgia Considers Launching Its Own Central Bank Digital Currency

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The National Bank of Georgia is considering launching its own Central Bank Digital Currency (CBDC). The regulator has invited interested financial institutions, fintech firms, and technology companies in the private sector to partner with it to build the CBDC project dubbed “Digital GEL.”

The aim of the project is just the same as other CBDC projects. The Central Bank of Georgia believes that the CBDC development would enhance Georgia’s payment system, incentivize innovation, facilitate financial inclusion, and provide an outreach to the unbanked population.

The central bank is expecting prospective partners from the private sector to make suggestions on how to introduce the use and near-instant settlement of CBDCs to the general population, all the while keeping transacting costs low. The financial regulator also expects the CBDC solutions to allow for automatic payments and smart contracts for tax collection and automatic tax accounting tasks.

According to the central bank, the “Digital GEL” would comply with the standards for a CDBC that the Bank for International Settlements laid out last year. The new CBDC is set to comply with Europe’s personal data protection rules and the FATF anti-money laundering directives and allows the operator to collect statistical data without de-anonymizing users.

The regulator might develop a testing environment or regulatory sandbox for the firms working on CBDC project.

Countries Leading the CBDC Pack

Georgia – a state within the United States with a population of 3.7 million – used to be ranked as one of the world’s top leaders in the Bitcoin mining field. The state is now planning to join the rising number of countries examining potential sovereign digital currencies.

In response to the global increase of digital payment solutions, central banks across the globe are working towards developing their own CBDCs. The plans of adoption of Central Bank Digital Currencies has been on the increase as governments are not quite able to control the rising popularity of Bitcoins and other cryptocurrencies. If this trend continues for the next few years, then the traditional banking system is likely to have to provide ways to accommodate and integrate the rising innovation of cryptocurrencies into the current financial system.

That is the reason why central banks of various nations across the world are in the process of creating their own CBDCs.

The CBDCs, not volatile like cryptocurrencies, are just a digital version of fiat currencies.

So far, the Bahamas and Cambodia have already launched their CBDCs. China’s digital renminbi – the most prominent CBDC project – is being tested readying for launch very soon. The United States, European Union, Sweden, United Kingdom, Canada, and South Korea are also researching and considering their own CBDCs.