Yesterday at the virtual World Economic Forum, the Bank of England (BofE) Governor Andrew Bailey spoke on a digital currency panel. He believes digital currency designs will evolve further and shared thoughts on the privacy of digital currencies.
Governor Bailey was responding to a question about the complexity of regulating the digital currency sector given all the different flavors of digital currencies and stablecoins and the added dimension of digital currencies being inherently cross-border.
Governor Bailey’s response was an approach based on principles. “History guides us here by defining where the public interest lies,” he said.
He outlined three public interest areas as providing stable value, the potential use for criminal purposes and privacy.
There’s “the whole question of a privacy standard for access to the personal information that goes with transactions made in any form of digital currency. Where the public interest lies in terms of the balance between privacy and obviously the benefits to the public that come with reduced transaction costs, use across borders,” said Governor Bailey. He acknowledged the issue’s importance.
We noted his reference to any form of digital currency because the recent BIS CBDC report from seven central banks debated the possibility of sharing personal information relating to central bank digital currency (CBDC) transactions. It considered some of the costs of the CBDC could be offset by “allowing access to consumer data.”
The ECB seems adamantly against this for CBDC, so it’s possible that the BofE may be one of the central banks willing to explore sharing personal information. However, Governor Bailey’s privacy issue reference yesterday was about digital currencies in general, not purely CBDC.
Digital currencies need to evolve
Governor Bailey noted the innovation in payments in recent years but thinks there’s a way to go, particularly for cross border payments.
“Have we landed on what I would call the design, governance and arrangements for what I might call a lasting digital currency? No, I don’t think we’re there yet,” said Governor Bailey.
“I don’t think cryptocurrencies as originally formulated are it,” he said. And the reason he gave is “people having assurance that their payments are going to be made in something with stable value.” Which he believes has to link back to state fiat currency in some shape or form.
Governor Bailey noted there’s plenty of scope for innovation in these areas.
“We’re right still to debate stablecoin. We’re right to debate central bank digital currency. Those issues, I think, are still very much up for grabs.”
Five months ago, Governor Bailey shared his views on stablecoins in more detail. And it’s now been almost a year since the Bank of England outlined its CBDC research roadmap.
