Senior Bank of England Official ‘Not So Worried’ About Crypto ‘Threat’

Colin Muller

The snowy surroundings of the annual World Economic Forum Davos conference (known simply as “Davos”) are still not immune to talk about cryptocurrencies it seems, even after a yearlong implosion of market prices that has taken blockchain largely out of the public eye relative to one year ago.

Senior Adviser to the Governor at the Bank of England (BoW) Huw van Steenis was apparently “not so worried about cryptocurrencies,” after being asked during an interview if digital assets could “become a serious threat to the stability of the [UK’s, presumably] economy.”

Delivering an often repeated institutional argument, van Steenis pointed on that - in his view - cryptocurrencies “fail the basic tests of financial services: They’re not a great unit of exchange, they don’t hold value, and they’re slower.” He did however concede that “that’s at the moment, but they’re a threat.”

Van Steenis, who heads the BoW’s Future of Finance research report, went on to illustrate what he sees as a more pressing issue within “fintech” in general:

I think the bigger threat is: How do you get non-bank - [...] as [banking] moves to tech platforms [and as] the banking system is unbundling, how do you keep supervision over a much more complex set of companies?

Huw van Steenis at Davos

Crypto not= Fintech

Drawing a clear distinction between cryptocurrencies and such “tech platforms,” van Steenis describes in shorthand the predicament facing traditional, larger banks which are under threat from new fintech ventures seeking to digitize banking completely.

Although he did not name names, he is perhaps referring to services like Revolut or Uphold - services that not only handle fiat currency, but also integrate cryptoassets directly into their functionalities.

He says the “number one topic [among bank CEOs] is: How can they invest in technology to make their service better, and fend off the threats these big [fintech] platforms,” adding again that “cryptocurrencies are not high on my worry list.”

UK is Pro-Crypto

Even if van Steenis sees crypto as a marginal phenomenon, his fellow UK citizens perhaps do not share his views on average. CryptoGlobe reported during 2018 of surveys conducted in the UK, which revealed that most people preferred to get bitcoin as a gift, over cash; and that the majority of Britons are not keen on a centrally issued stablecoin.

Bank of England Governor Recommends Replacing Dollar With 'Libra-Like' Digital Currency

  • BOE Governor Mark Carney proposed replacing the US dollar with a libra-like digital currency as the global reserve. 
  • Called for a dramatic shift in policy to address the changing economic landscape. 

Bank of England Governor Mark Carney has made a radical recommendation for central banks that the U.S. dollar be replaced with a Libra-like digital reserve currency. 

Replacing the Dollar

Speaking at the Federal Reserve’s annual Jackson Hole Symposium on Aug. 23, Carney called for a dramatic shift in global monetary policy that would see central banks taking a greater interest in digital currencies such as Facebook’s forthcoming libra. 

The BOE Governor’s proposal would replace the U.S. dollar as the world’s reserve currency with a digital alternative. While it was unclear if Carney was actually suggesting that libra could be used to fill the void, his intent was to spur interest in a fiat alternative for global reserves. 

Carney argued that proactively replacing the dollar with a digital coin substitute would be preferable to allowing another national currency usurp its status--such as the Chinese renminbi. 

He pointed to the global economic uncertainty in part being generated by deteriorating U.S. trade relations, 

The combination of heightened economic policy uncertainty, outright protectionism and concerns that further, negative shocks could not be adequately offset because of limited policy space is exacerbating the disinflationary bias in the global economy.

He continued, 

When change comes, it shouldn’t be to swap one currency hegemon for another. Any unipolar system is unsuited to a multi-polar world. We would do well to think through every opportunity, including those presented by new technologies, to create a more balanced and effective system.

Cryptocurrencies Gaining Prominence

The introduction of a non-fiat currency could have the effect of devaluing the dollar, and most national currencies, which could be one way for central banks to introduce inflation to erode away the record levels of debt accumulating globally. 

Some have speculated that an alternative asset such as gold could be used as an intermediate. However Carney, who announced several months ago he would be stepping down as Governor of the BOE, has shown a route to fiat alternatives which includes the creation of digital currencies.

He lauded the technology for its efficiency in payments and cross-border transactions, 

The most high profile of these has been Libra – a new payments infrastructure based on an international stablecoin fully backed by reserve assets in a basket of currencies including the US dollar, the euro, and sterling. It could be exchanged between users on messaging platforms and with participating retailers.

While Carney’s suggestion to replace the U.S. dollar is one of the most radical proposals yet, it does give insight into the global trend in central banks to pursue digital currencies as an alternative to their outdated fiat counterparts.