By Leon Gauhman on Wednesday 6 July 2022
The UK's new chancellor of the exchequer should prioritise his predecessor Rishi Sunak's crypto plans, writes Elsewhen's Leon Gauhman.
Congratulations on your promotion: commiserations on the circumstances. With political upheaval and soaring inflation, rescuing crypto might not be high up your to-do list. In my view it’s an opportunity for the UK to demonstrate leadership and make a difference: two qualities in seriously short supply within your government.
In April your predecessor unveiled his latest economic master plan – to make the UK "a global hub for crypto-asset technology." Just a few weeks later, the market went into a nosedive which some experts predict is the start of a protracted crypto winter.
With poster child cryptocurrencies like Bitcoin and Ethereum having lost around 50-60% of their value since May, you have a stark choice, Chancellor. You could quietly drop Rishi’s crypto hub idea: Or you could create a world-class crypto ecosystem that leans into the current carnage.
In my view, Nadhim, you should push ahead with Rishi’s crypto-coated vision but channel your energies into creating a Bank of England-backed digital currency. If the current crisis tells us anything, it's that crypto needs some grown-ups in the room.
Pre-crash, this move might have made you look like a crypto sector killjoy seeking to clip the wings of crypto entrepreneurs. But with so-called stablecoins like Terra collapsing, Tether losing investors' confidence, crypto's future now depends on its successful integration and interaction with the traditional world of fiat finance.
Here are five reasons you should get on the phone with Andrew Bailey and start planning that Digital Pound.
Salvage the sector’s true value: The time has come for crypto to mature out of its anarchic teenage phase. Beyond the unrealistic, utopian vision of decentralisation, there are powerful reasons to support a blockchain-based decentralised finance model (greater transparency, easier composability and interoperability, improved accessibility for the underbanked). Rishi’s hunch that there is value in crypto tech is correct, but the ongoing chaos in the market shows that Bitcoin and privately backed stablecoins are not fit for purpose when it comes to underpinning the crypto economy. Crypto's survival depends on creating a solid foundation that uses central bank digital currencies as the spine of the crypto ecosystem.
Display crypto leadership: Around 80% of central banks are looking at CBDCs. But only China and Nigeria have started down the path meaningfully. The UK is currently consulting on plans that could lead to a CBDC by the second half of the current decade. Accelerating that glacial timeframe, Nadhim, is key to creating a global crypto hub. The launch of a digital pound, a stablecoin backed by the Bank of England, whose value doesn’t fluctuate and that can always be redeemed by fiat, could be the defining element of the UK’s crypto leadership.
Reinforce London’s global financial status: Post-Brexit, London's reputation as a global financial hub has come under increasing threat from the Eurozone. Right now, the EU has not managed to inflict a fatal blow on the UK capital, but it looks marginally ahead of your regime on CBDC planning. Indeed, it is using the current weakness in independent cryptocurrencies to accelerate its plans. The UK's failure to push on with CBDCs is not just a competitive risk; it contradicts post-Brexit ideology, which is supposed to be about agility, seamlessness and speed to market. You need to channel some of the visionary thinking that made the UK a world leader in open banking.
Avoid capitulation to Big Tech: In 2021, BoE Governor Andrew Bailey told the House of Lords that he supported the introduction of CBDCs because cryptocurrencies have the potential “to be a threat to financial stability". Since then, he has authorised a 12-month research project with MIT. Bailey has also suggested that if central banks don't get a grip on crypto, then control of the sector will default to big tech, which he fears can’t be regulated in the same way as banks. All the more reason to push ahead with a digital pound.
5. Protect consumers: In the race to control the crypto narrative, It’s easy to overlook your government’s responsibility to protect consumers. This includes preventing crypto scams and hacks – which cost investors a staggering $14 billion in 2021. Of course, CBDCs will also face threats, but well-designed digital currencies will set standards of privacy and security that give consumers the confidence to embrace crypto.
Here’s a final piece of advice Nadhim: Avoid sounding like a crypto hedge fund manager when talking about crypto's potential. Instead, talk up the potential benefits of CBDC as an economic instrument – from reduced tax evasion to improved monetary policy. Get your tone right, and there's a genuine opportunity to take advantage of the current turmoil by positioning the UK to deliver a world-class crypto-centric solution rather than beating an HS2-style retreat.
The views and opinions expressed are not necessarily those of AltFi.