In a speech (PDF) last week, Mark Carney set out his views on the future of money and how, in his view, this will change with the development of cryptocurrencies. Here are some key high-level takeaways from Mr Carneys speech:
- The role of cryptocurrencies as money: Mr Carney was upfront about the fact that in his view cryptocurrencies are “failing” as a currency and explored three key problems with the technology, namely that cryptocurrencies: (a) are poor stores of value due to the extreme volatility caused by their lack of intrinsic value or external backing, (b) are inefficient media of exchange due to their generally being slower and more expensive than payments in sterling and (c) because of these problems are virtually unused as units of account.
- The Bank of England’s policy towards cryptocurrencies: In addition to cryptocurrencies’ shortcomings as money, the Bank of England has wider concerns around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion and the circumvention of capital controls and sanctions. However, the Bank of England does not wish to avoid stifling innovation or preventing the implementation of technologies that will bring future benefits to the financial system.
- The regulation of cryptocurrencies: In view of the potential technological benefits, Mr Carney was against general bans on the use of cryptocurrencies but instead targeted regulation so that cryptocurrencies are held to the same standards as the rest of the financial system. Mr Carney gave the following examples that the Bank of England are looking into: (a) regulating crypto-asset exchanges according to the same standards as security exchanges, (b) introducing regulations to prevent ICO’s being allowed to “use semantics” to avoid regulations and (c) clarifications to the regulatory requirements, such as for capital, of institutions which engage with or have exposure to cryptocurrencies.
- The future of money: Perhaps most interestingly, Mr Carney shared his thoughts on how, if cryptocurrencies as we know them are not the future, money and payment systems will change in the future as a result of the technology such as: (a) the diminished role of financial institutions as society’s preference changes towards decentralised peer to peer interactions (b) the role of distributed ledger technology and the benefits this will have on the efficiency, reliability and flexibility of payments and (c) the adoption by central banks of their own digital currencies (however, Mr Carney was of the view that this was unlikely to take place in the short term due to the technology’s existing shortcomings).
It is interesting to hear the views of such a senior policymaker on how a not-so-distant financial system might look based on market conduct to date. It also raises an important debate about how our financial system may need to change for the benefit of society and how traditional financial institutions will fit into that given the recent advances in cryptocurrency technology. Mr Carney’s speech will interest anyone engaged with this technology or financial services as a whole.