British Government Announces Move to Recognise and Regulate Cryptocurrency

Rishi Sunak announced the scheme where "stablecoins" will become recognised forms of payment to give people confidence in using digital currencies. (Stefan Rousseau/PA)

Chancellor of the Exchequer, Rishi Sunak, has announced his ambition to make the UK a global hub for crypto-asset technology, in a move that'll see some cryptocurrencies called stablecoins recognised as a valid form of payment.

Unlike Bitcoin, which is a private, decentralised digital currency, stablecoins are cryptocurrencies designed to have a stable value relative to traditional currencies, or to a commodity such as gold. For example, Tether is the largest stablecoin current market value of nearly $70 billion. Others include Dai and Binance USD. However, the Treasury has not yet confirmed which stablecoins will be regulated.

Stablecoins

After a consultation in January, where the government said that stablecoins could pave “the way for faster, cheaper payments, making it easier for people to pay for things or store their money,” it now intends to legislate them within the payments regulatory perimeter, creating conditions for stablecoins issuers and service providers to operate and invest in the UK.

Commentator and investor on the future of finance and technology, Simon Dixon, who runs the global online investment platform Bank To The Future, told The Epoch Times that countries all around the world for the last 10 years “have been trying to figure out how to support or eliminate our industry.”

Dixon’s platform has, to date, invested $825 million in the crypto sector. He said that who benefits from the process of creating money and stable coins is up for grabs.

“Now all these different players said we should create stable coins but who creates them is the internal war, because whoever creates the money controls the economy,” he said.

“When a central bank creates a digital currency, it doesn’t have to be backed by a loan so it is a radically different way of creating money, essentially you are just creating the money, it doesn’t have to be lent into existence,” he added.

Among the announcements included a commitment to launch an official Royal Mint NFT (non-fungible token) later this year as well a new “financial market infrastructure sandbox” and Financial Conduct Authority-led “cryptosprint.” According to the government, the last two can ensure financial stability and high regulatory standards so that these new technologies “can ultimately be used both reliably and safely.”

CBDC

The Treasury took a more optimistic tone than when Deputy Bank governor Sir Jon Cunliffe told the BBC that crypto-currency assets “could pose a danger to the established financial system.” Cunliffe said that about 0.1 percent of UK households’ wealth was in crypto-currencies. This amounted to an estimated 2.3 million people holding an average amount per person of about £300 ($392).

“Their price can vary quite considerably and they could theoretically or practically drop to zero,” said Cunliffe. “We really need to roll our sleeves up and get on with it, so that by the time this becomes a much bigger issue, we’ve actually got the regulatory framework to contain the risks,” he added.

Last November, the Bank of England announced that it was looking carefully at a UK central bank digital currency (CBDC). As of yet, it has not yet made the decision to introduce one. A CBDC is different from a cryptocurrency. The new form of digital money would be issued by the Bank of England, though there is public concern over the risk of state surveillance and control.

Scary Prospect

Dixon, who has a Youtube channel with 80,000 subscribers, said that CBDC puts through a mechanism in which theoretically, the government may not need to bail out the banks again as it did in 2007. At the time, a British government bank rescue package totaling some £500 billion ($653.8 billion) was spent in response to the global financial crisis.

“The Treasury could decide to get rid of the central bank and then the Government could take full control over money rather than giving it to the central bank or to the private bank, which is a scary prospect,” he said.

A CBDC could also mean automating tax collection at the point of transaction, which then would be tied to a passport which could stop people from traveling if this is in dispute.

“The reason why people are scared about this is that by allowing the government to create money, history has shown that they will use that power in order to enforce agendas to make government bigger and bigger.”

Dixon added that the counterforce is private cryptocurrencies such as Bitcoin or Etherium. “That allows the market to compete,” he said.