Bank of England deputy governor Jon Cunliffe has said that the United Kingdom might need a digital pound. The comment came during a discussion around the collapse of the crypto exchange FTX and its potential impact on the country’s decision to issue a central bank digital currency (CBDC).
In an earlier statement, Cunliffe expressed his belief that there was no relationship between the collapse of Sam Bankman-Fried’s FTX and the role of the central bank in developing a CBDC. However, he said he understands the public’s concern about CBDCs and the safety of user funds in exchanges.
Crypto exchange FTX filed for Chapter 11 bankruptcy protection on November 11, citing a liquidity crunch. Binance CEO Changpeng Zhao expressed the intention to bail out FTX but later withdrew because of “recent revelations” and planned to liquidate all its FTT holdings.
There were also revelations about the weak balance sheet of Alameda Research, FTX’s corporate sister. Upon this news, users flocked to withdraw funds from the exchange, thus causing a liquidity crisis.
The Bank of England has been investigating the issuance of a digital pound, a move that, according to reports, was prompted by trends within the payment sector, including reducing the role of cash in the modern world and the digitization of daily life.
Cunliffe on Crypto Market Regulation
Cunliffe made another statement during a conference at the Warwick Business School of Coventry, saying:
“Over the past few days, I have had a few comments both to the effect that the collapse of FTX shows that we need to get on and issue a digitally native pound and to the effect that FTX shows that we do not need to do so.”
Additionally, Cunliffe noted that FTX was a notable symbol of emerging technologies that could transform financial services and change money’s forms. He also explained that the crypto industry could benefit from the current regulatory framework serving the traditional financial sector. In his words:
“Our approach as regulators should be open – by which I mean we should be prepared to explore whether and if so, how the necessary level of assurance equal to that in conventional finance could be attained. But we should also be firm that where it cannot, we are prepared to see innovation at the cost of higher risk.”
In Cunliffe’s opinion, the cryptocurrency market needs to be duly regulated for several reasons, including the safety of investors, the promotion of financial stability, and fostering of innovation.
Crypto Regulations in the UK
Besides rooting for a digital pound, Cunliffe also supported the country’s efforts to issue appropriate regulations within the crypto sector. Notably, there are ongoing discussions in the UK parliament about the legislation of crypto assets in their role as financial instruments. The consideration is centered on giving regulators more control in the crypto sector. The bill intends to allow BoE to regulate large issuers of payments focused on crypto assets like stablecoins.
If the proposal passes, crypto will be classified as a financial instrument. The Bank of England and UK regulators will have more control over the sector and the crypto companies that issue stablecoins.
The first step in this association would be launching a consultation phase into stablecoins in 2023 to determine how these assets maintain transparency, accountability, governance, and corporate structure while still meeting the standards within the financial space. According to Cunliffe, the FTX crisis showed that these aspects were vital.