Bailey’s Skepticism Towards Cryptocurrencies
During a recent high-profile event, the London Financial and Professional Services Dinner, the governor of the Bank of England, Andrew Bailey, shared his candid views on the world of cryptocurrencies. In his address, Bailey was critical of these digital assets, stating that cryptocurrencies like Bitcoin (BTC) and others do not fulfill the prerequisites to be recognized as money. He categorized them as “extremely speculative investments,” highlighting their inherent volatility and potential risks.
The Definition of Safe Money
According to Governor Bailey, safe money should possess two fundamental characteristics—singleness and finality of settlement. Singleness refers to the assurance that money will maintain the same value, irrespective of its form. This principle ensures equal exchangeability, meaning that one unit of money should always be interchangeable with any other.
The finality of settlement, on the other hand, implies an unwavering confidence that a transaction or payment has been completed effectively. In Bailey’s view, these two principles are critical for any form of money to provide stability and security to its users, elements he finds lacking in the current state of cryptocurrencies.
The Future: Enhanced Digital Money
While Governor Bailey cast doubts over cryptocurrencies, he was emphatic about the potential of what he termed “enhanced” digital money to shape the future of the global financial ecosystem. This concept, according to him, represents a new generation of digital currencies that leverages internet systems to execute actions like smart contracts.
Beyond Central Bank Digital Currencies (CBDCs)
Andrew Bailey’s vision of enhanced digital money transcends the scope of Central Bank Digital Currencies (CBDCs). While CBDCs have been hailed as the future of financial transactions, Bailey suggests that enhanced digital money, capable of executing smart contracts, could provide even more benefits to the public.
In fact, Bailey sees retail CBDCs playing a critical role in promoting the principle of singleness of money. A retail CBDC could potentially provide the public with an everyday use case of fully functional central bank money.
This, according to him, would offer more stability and consistency than cryptocurrencies and even some traditional forms of money, thereby driving forward the principle of singleness.
In conclusion, while Governor Bailey remains critical of cryptocurrencies, his advocacy for enhanced digital money demonstrates his understanding and acceptance of the inevitable digital transformation of the world’s financial systems. Only time will tell how these visions will shape the future of finance.
