In a recent speech, Bank of England (BOE) governor Andrew Bailey expressed his preference for ‘enhanced digital money’ over cryptocurrencies and stablecoins. Bailey emphasized the importance of singleness of money and settlement finality, asserting that cryptocurrencies and stablecoins fail to meet these basic criteria.
Bailey pointed out the issues revealed by recent bank failures in the United States and Switzerland, highlighting how both cryptocurrency and stablecoin lack the singleness and settlement finality necessary for reliable financial systems. He stated unequivocally, ‘They are not money.’
Instead, Bailey proposed enhancing existing digital money systems that are already held entirely within IT systems. By attaching additional executable actions, such as contingent actions in smart contracts, he believes digital money can be improved to serve as a more versatile unit of currency.
While Bailey acknowledged that central bank digital currencies (CBDCs) could fall under the category of enhanced digital money, he also emphasized that well-designed enhanced digital money need not be exclusively controlled by central banks. However, he highlighted the advantages of a retail CBDC, which would provide the public with access to fully functional central bank money for everyday transactions, promoting the singleness of money.
Regarding wholesale CBDCs, Bailey mentioned that the BOE had recently upgraded its Real Time Gross Settlement system, positioning them to integrate central bank digital money in tokenized transactions without necessarily creating a separate wholesale CBDC. Despite technological advancements, he affirmed that physical cash would remain in circulation.
Bailey’s stance reflects the ongoing debate surrounding the role of cryptocurrencies, stablecoins, and CBDCs in the future of monetary systems. The speech underscores the BOE’s commitment to maintaining public trust in financial institutions and controlling inflation.