More Conclusions: Regulators Loathe Cryptos, And CBDC Competition Is On
- Martin Baker, award-winning journalist and head of communications at Money&Co., opines on central banks, their competition for CBDC dominance and their dislike of cryptos
Regulators Dislike Cryptos
Regulators by definition cannot control tokens outside their banking system, so their antipathy is natural enough. This can spill over into wishful thinking. The Bank for International Settlements’ general manager, Agustin Carstens, made a speech in late January to the Hoover Institute [4] arguing that Bitcoin, the bellwether crypto, may “break down altogether” and that Bitcoin is “more of a speculative asset than money” which should perhaps “be seen more like a community of online gamers, who exchange real money for items that only exist in cyber space.” But Bitcoin and cryptos in general have advanced since then, with daily deals and innovations announced either side of this year’s Bitcoin price spike of $64,000.
The BIS combination of wishful thinking and enmity contrasts with the efforts of US regulator, SEC Commissioner Hester Peirce, to bring cryptos into the regulatory domain. Speaking not long after Carstens at a US event she argued for a more enlightened, inclusive approach: “While regulators need to understand and scrutinize new asset classes and technologies, excessive conservatism can impede competition, distort the market, and harm investors.”
In late May, China cracked down trading on Bitcoin trades amid preparations for its state-backed currencyand Bitcoin fell 30 per cent in a day. Just another example (there are many) of aggressive state moves and consequent wild crypto price fluctuations. Then in late June, the UK’s leading financial regulator, the FCA banned the UK arm of crypto exchange Binance from undertaking “any regulated activity in the UK”. A few days later Barclays withdrew its support for customers with a link to any Binance account. The general attitude is quite clear.
Massive Competition For CBDC Dominance
Central banks and their governments are understandably desperate to establish their own digital currency as the dominant world brand. The dream is to have an electronic version of the mighty Dollar, the most widely accepted value token in the world.
The big caveat here, though, is that whilst CBDCs may be digital currencies they are not cryptocurrencies. Cryptos have a money supply and validation run by shared-ledger or distributed-ledger technology (DLT). If you own a CBDC, much though the central bankers and governments might like you to think otherwise, you have a bank account with a government bank, the entity that has ultimate control of the ledger or money supply. Pushed as cryptos, CBDCs are state-prescribed methodone to cryptocurrencies’ free-market heroin.
Mu Changchun, Director of the Digital Currency Research Institute of the People’s Bank of China (PBoC) offered a fine exposition of the idea that many governments, with China in the vanguard, are trying to promote when he expounded on the concept of the “controllable anonymity” of the virtual yuan during the 2021 China Development Forum in late March.
The anonymity becomes more controllable as financial transfers become larger, with more and more know-your-client scrutiny – that staple of mainstream banking – being applied to users’ digital wallets as transaction sizes increase.
Mu Changchun said: “Although the payment department of telecom operators is also involved in the research and development of digital renminbi, according to the current national laws and regulations, telecom operators are not allowed to disclose mobile phone customer information to third parties such as the central bank, and of course they are not allowed to provide it to the departments that operate digital renminbi. . Therefore, wallets opened with mobile phone numbers are completely anonymous to the People’s Bank of China and various operating agencies.”
Readers who believe in the Chinese government’s respect for the privacy and human rights of the individual will have no problem believing that. Others may disagree.
China is well ahead of other governments in trialling and implementing its CBDC. I wrote about this in an earlier article [x-ref link]. Other players include Russia, which hopes to have a digital ruble in play by the end of the year; the US is rolling out five pilot schemes in different areas over the next year. The UK is also playing catch-up. Bank of England Deputy Governor Sir Jon Cunliffe indicated in a speech in May that the UK will roll out its own CBDC, called – I’m afraid so – Britcoin.
“We may not be there yet, but it looks probable in this country that if we want to retain public money capable of general use, and available to all citizens, the state will need to issue, public digital money,” Cunliffe said.
This October saw the launch of The Digital Pound Foundation an industry ginger group chaired by senior Barclays banker Jeremy Wilson, with members such as Accenture, CGI Group and Ripple and the aim of promoting the “implementation of a digital pound and digital money ecosystem”.
Other players in the field include Sweden, Ghana, Bhutan, the European Union and various states in the Middle East.
