Published: January 27th, 2020
– The decline of cash transactions coupled with the threat that Facebook’s Libra poses is pushing many central banks to weigh the potential benefits of adopting cryptocurrencies. A global group of central banks that include the Bank of England have formed a task force to review the feasible dangers of depending on electronic money…
The Bank of England (BoE) is pushing a plan to embrace digital currency. This move is as a result of an initiative by a global group of central banks that have come together to look at the possible risks of adopting electronic money. BoE officials will meet with their counterparts from the Bank of Japan, the Bank of Canada, the Bank for International Settlements (BIS), the Swiss National Bank, the Sveriges Riksbank (the central bank of Sweden), and the European Central Bank (ECB). The purpose of the meeting is to coalesce lessons, experiences, and research on the possibilities of a central bank digital currency (CBDC).
Sir Jon Cunliffe, the deputy governor of BoE will co-chair the group alongside Benoît Cœuré who is a former board member of ECB and the current head of the innovation hub at ECB.
The move by this global group of central banks to go crypto has been motivated by the emergence of private-sector digital currencies such as Bitcoin. Industry insiders think that plans by Facebook to launch Libra later this year is also pushing central banks to embrace technology to cushion themselves.
Libra and its accompanying wallet have attracted the attention of many central banks and regulators worldwide. BoE is among the institutions that have promised a raft of tough new rules to keep the private sector coins in check.
BoE has also been vocal about Libra and is one of the central banks that are pushing for the regulation of the proposed cryptocurrency. Because of the BoE’s stance, several supporters among them PayPal, Visa, MasterCard, eBay, Stripe, Mercado Pago, and Bookings Holdings withdrew their support for Libra.
Aside from the need to counter the effect of cryptocurrencies from the private sector, bankers think that the introduction of CBDCs will enhance cross-border transactions and improve payment systems.
A BoE official said the working group will review CBDC and their use cases. The official added that the group will also look at the economic and technical design choices as well as the functionality of the coins, including cross-border interoperability. The group will also share knowledge on emerging innovations in the FinTech space.
The BoE said they are exploring collaborations with other global groups and forums that have a similar agenda. In particular, the working group plans to work with the Committee on Payments and Market Infrastructures (CPMI) which Cunliffe chairs, and the Financial Stability Board (FSB).
Despite the enthusiasm that BoE is displaying, it is emerging that other central banks that are a few steps ahead. The European Central Bank has been exploring the advantages of CBDCs for about a year now. Sweden, too, recently partnered with Accenture, a strategy and digital technology multinational consultancy to help it build a digital platform for a cryptocurrency called e-krona.
It is reported that because of the slump in the use of physical cash in Sweden, the Riksbank been investigating the idea of adopting a digital currency for some time now.
These moves are an indication of a change of heart among policymakers and central bank managers. According to Fran Boait, the executive director of Positive Money, a not-for-profit advocacy outfit for reforming the banking sector, policymakers took too long to comprehend the enthusiasm surrounding digital money.
Fran adds that policymakers slackened and let the future of the money system to be decided by payment companies and small banks before the entire process was hijacked by big tech companies.
He adds that the threat posed by private digital currencies such as Litecoin and Libra and the rapid waning of cash transactions have woken up the central bank governors. Fran adds that while central bankers now seem to be in touch with the realities of the market, they have a lot of catching up to do.
He concludes that central banks have to speed up the plans for developing and releasing CBDCs. Doing so will give people the safe choice of a public banking option, he adds. Besides, it will prevent the world’s monetary systems from surrendering to private interests, which he thinks are unaccountable.
Lack of enthusiasm from central bankers may have been as a result of insider influence. Some influencers in the industry have not been very receptive to cryptocurrencies. For instance, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) lumped all cryptocurrencies in a basket and castigated them as useless and unstable.
During a breakfast briefing in London in September 2019, the network noted that cryptocurrencies go down as easily just as yoyos do. The organization noted that even if cryptocurrencies manage to change the narrative, they remain a basket of currencies.
Considering that the network serves the interest of some 11,000 banks who it provides with messaging capabilities and the environment to transfer money around the globe, its views are respected in the industry.
The sentiments by SWIFT, notwithstanding, the industry is waking up to the realities that are tilting the playing field in the banking industry. Central banks realize that they have to adapt or they will be left with eggs on their faces.
The Bank of England has joined a group of central banks that are prospecting for a CBDC. Hopefully, this project will help the banks maintain their grip on the globe’s money industry. Besides, their oversight of the payment and banking options helps create a safe environment that everyone can trust is important and should never be lost. However, are these central banks aware of the entire lay of the land, and are the experiences and knowledge they are sharing enough to help them navigate the treacherous path that cryptocurrency development entails?