The Bank of England (BoE) is open to the possibility private cryptocurrencies may have a role in the future of money.
In a webinar hosted Tuesday, BoE analysts working on the U.K.’s central bank digital currency (CBDC) initiative said there was a distinct possibility that private companies could play a much larger part in the issuance and distribution of money.
Although the BoE has already said bitcoin (BTC) and other similar cryptocurrencies don’t meet the necessary criteria to be considered money, CBDC analyst Ben Dyson said, “that doesn’t mean that it’s impossible for somebody to improve upon that technology and create something that much better fulfills the qualities of money.”
“We’ve seen proposals over the last year from large technology firms, for example, to build payments systems and crypto-assets that could function more as stable money,” he said.
Although they might introduce new risks into the monetary system, Dyson said private currencies could work alongside any future CBDC initiative if they offered real utility.
Dyson did not mention the Libra project that was unveiled last June, but the Facebook-led plan is to build a stablecoin based on a basket of fiat currencies. Since its announcement, it has since seen a tsunami of pushback from regulators and politicians around the world.
“If these proposals are responding to a real need – for example, some weakness in the existing payments system, or some category of users that are not being served by the existing payments systems – there may be a role for the public sector in addressing some of that need, as well as just leaving it to the private sector,” Dyson explained.
The BoE’s views about private currencies are distinct from those from other central banks, which have talked specifically about Facebook’s currency initiative as well as the broader space.
In February, U.S. Federal Reserve Governor Lael Brainard said the motivation for researching CBDCs was to counter privates currencies, such as libra, that could exist outside U.S regulation. It’s widely believed China accelerated its plan for a digital yuan in the face of a possible rival from Facebook.
French and German officials have also voiced their opposition to libra and said such initiatives might not even be legal in their jurisdictions. Barely a month ago, the Canadian central bank governor said it would only issue a CBDC in order to compete against a potential threat like libra.
This isn’t the first time the BoE has adopted a more conciliatory approach to libra. In August, then-governor Mark Carney said that although libra would have to be heavily scrutinized, the concept of private companies issuing their own currencies was “intriguing.”
But as the BoE analysts also emphasized in Tuesday’s webinar, any future digital currency – including a prospective CBDC – would need to comply with tight data privacy standards. “The key thing for the Bank of England is to make sure if we were to do a CBDC – and it is an if – it would absolutely respect people’s rights to privacy,” said Tom Mutton, the BoE’s fintech director.
Like much of Europe, the U.K. adopted the General Data Protection Regulation (GDPR) – which will stay in place after the nation leaves the European Union – that essentially gives users ownership rights over their own personal data. Companies such as Facebook, which has a poor record on privacy, now have to seek user permission before they can use any of their personal data.
It’s likely the BoE would hold any currency issued by centralized firms like Facebook – which saw its reputation slide during the Cambridge Analytica scandal – to the same data privacy standards as a prospective CBDC.
A British parliamentary committee previously highlighted Facebook’s privacy record, saying it may probe libra over whether it can adequately protect the financial data of billions of users.
“CBDCs would have to be designed to be compliant with these [data privacy] regulations, at the same time we want to ensure that the users of CBDCs can be confident that privacy in their payments and what data is shared and on what basis and with whom,” Dyson said Tuesday. “It’s unlikely that a [CBDC] could be completely anonymous but we would like to design something that respects users’ privacy and gives people control over their data.”
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