On March 2, the governor of the Bank of England (BoE), Mark Carney, delivered a speech entitled “The Future of Money.”
Mr. Carney highlighted shortcomings of cryptocurrencies and the need for authorities to isolate, regulate or integrate them, with his preference being regulation. Mr. Carney stated that “isolation risks foregoing potentially major opportunities from the development of the underlying payment technologies.” He also suggested that cryptocurrencies do not pose material risks to financial stability due to their relative insignificance.
After an initial historical background regarding the nature of money, Mr. Carney credited the confidence and ease with which citizens can use sterling to the support of the BoE through:
- its real-time gross settlement (RTGS) payment system;
- the Monetary Policy Committee’s oversight of monetary policy;
- the Prudential Regulation Committee’s regulation of banks and building societies;
- the Financial Policy Committee’s wide powers to counteract systemic risks; and
- the anti-counterfeiting measures of its durable banknotes.
Mr. Carney emphasized that current cryptocurrencies do not represent the future of money; he suggested that, in short, they are “failing” to fulfill the role of money. This was justified on the basis that cryptocurrencies are poor short-term stores of value, inefficient media of exchange and virtually non-existent units of account—i.e., they fall short on Adam Smith’s criteria.
Mr. Carney preferred the term “crypto-asset” throughout the latter half of the speech to reinforce this point; however, he indicated that crypto-assets were likely to foreshadow the future of money in three ways.
Firstly, crypto-assets represent a larger shift in society to “a series of distributed peer-to-peer connections.”
Secondly, the distributed ledger technology (DLT) underlying crypto-assets “is throwing down the gauntlet to the existing payment systems” by:
- increasing efficiency of managing data;
- eliminating central points of failure;
- enhancing transparency and auditability; and
- widening the use of automatic processes, such as “smart contracts,” which reduce the potential for human error or ambiguity.
Thirdly, crypto-assets raise questions about whether their infrastructure could be combined with the trust inherent in existing fiat currencies to create a central bank digital currency.
The speech closed by tying the potential DLT evolution to recent innovations by the BoE, in particular, the BoE’s overhaul of RTGS. Mr. Carney identified securities settlement as particularly “ripe for innovation” by the new RTGS, which could significantly reduce settlement times.
The speech is available to read and watch here.