House Of Lords Committee Is Hiding From Inconvenient Truths
- The recent report from the Economic Affairs Committee of the House of Lords is a classic case of heads in the sand – or wherever the sun doesn’t shine. The members of the committee are on the whole clever people with strong backgrounds in finance and its academic study. They seem to be committed to be public service and doing the right thing. But they may well have fallen victim to a bad case of wishful thinking.
The issue here is the potential launch of a British central-bank digital currency (CBDC), neatly entitled Britcoin. And the Economic Affairs Committee has come out against it.
Consider this news snippet from Fintech Futures: “The Economic Affairs Committee, made up of lords and baronesses, cited concerns over financial stability, surveillance and data protection, determining that a UK CBDC is a ’solution in search of a problem’.
Committee chair Lord Forsyth of Drumlean says a UK CBDC would have ‘far-reaching consequences’ and any potential benefits were overstated or achievable through less risky alternatives.”
The report, published last week, says that “while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy.”
The problem would be compounded, as reported by Coindesk, in that “the House of Lords committee said it would be “inevitable” that consumers would transfer money from their bank accounts into CBDC wallets. Therefore safeguards would be required on the amount of CBDC individuals could hold to avoid financial instability being exacerbated during turbulent economic times by people replacing bank deposits with digital banknotes.”
So the underlying thinking is clear enough: it’s all just a bit too tricky, a bit too difficult, fraught with hazard. Why bother?
The answer is evident if you chose not to put your head in a place of darkness. The inescapable fact is that there’s huge competition for dominance in the CBDC market.
This stems from two strong motivations. First, central banks and central governments fear and loathe crytpocurrencies. The intention is to persuade punters that a CBDC is a viable alternative – but safer as the nice people in suits are utlimately in charge of the digital ledger that acts as a form of money supply.
But CBDCs are not the real thing. They are Methadone to cryptocurrency heroin. The appearance is digital, but there’s none of the danger of a decentralised, independent algorithm running the show. The central banks are in charge, and they’ll monitor ever transfer of your digital tokens.
Furthermore, it’s seen in some quarters – notably in China – as a zero-sum game. The Chinese ceded financial hegemony to the all-powerful dollar many years ago – and have, according to some commentators, been running a series of currency powerplays between Dollar and Renminbi for decades. If, as a result of the popularity of cryptocurrencies, similar-looking (but substantively very different) CBDCs become popular, the Chinese most certainly want their own state-controlled digital token to be the dominant presence in the 21st Century’s marketplace.
And that is the second motivation. The will to financial power. The UK’s grandees may not like it very much, but there’s serious international competition to launch CBDCs.
Here’s a snippet from an earlier blog on this very topic:
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.
- The UK’s upper chamber may not like it, but events will dictate the need to launch a CBDC – even if it’s a case (as it probably will be) of playing catch-up.
