A digital pound consultation is expected to be published in “weeks not months.”
Asked by the committee chair, Harriett Baldwin, whether the government had changed its stance on digital assets since Prime Minister Rishi Sunak launched a plan to make the U.K. a global crypto hub last spring, Griffith, who is also the economic secretary to the treasury, responded that although certain recent events were “regrettable,” the government’s underlying position has not changed.
“Our objective is to continue to seek for the U.K. to be the home for a well-regulated, technologically advanced financial system,” in which crypto assets have a place, Griffith said.
As such, he pointed to ongoing efforts to better regulate how crypto asset services are promoted and advertised, as well as provisions in the Financial Markets and Services Bill (FSMB) that will establish a regime for the use of stablecoins for wholesale payment purposes. He also referenced the upcoming publication of a consultation on the issuance of a central bank digital currency (CBDC).
Griffith’s statements come after the Chancellor of the Exchequer, Jeremy Hunt, told parliament in December that the consultation had been brought forward while the Bank of England (BoE) explores different technological considerations for a potential digital pound.
Although both the government and the BoE are exploring what a digital pound could look like, and what its advantages would be, there is no certainty that the U.K. will choose to launch a CBDC.
As Griffith explained to the Treasury Committee, “the consultation is going to say that this is still an ‘if’ not a ‘when.’ We are not fully into the inevitability of doing this.” He went on to emphasize that the government has no intention of rushing headlong into issuing a CBDC and that any ultimate decision will be made by parliament.
Another consultation that Griffith said would be coming forward in the near future will look at the potential for future crypto legislation and how the U.K. should regulate the sector.
Although he said any specific crypto regulation is unlikely to be seen this year, Griffith did point to the Financial Markets Infrastructure (FMI) sandbox as another component of the FSMB, which will help to move the regulatory discussion forward in the near term.
He said the FMI sandbox will be used “to license and regulate for some of the applications and get them out into the market.” He added that the FSMB “will be done by, I hope, Easter. At that point, the [Financial Conduct Authority] will be open for business on the FMI sandbox.”
Wholesale CBDCs and Stablecoins
As the U.K. looks to forge its own path independent of the EU, financial services reform has been one of the most talked-up opportunities of the government’s post-Brexit policy agenda. And in 2023, the FSMB, alongside several other pieces of legislation, will set in motion significant regulatory divergences between the two jurisdictions.
On CBDCs, policymakers in the U.K. and the EU do at least agree on one thing: A wholesale CBDC will likely be the first use case of any central bank-issued digital currency.
Taking the lead in the EU, the Banque de France has moved ahead with its own wholesale CBDC pilot.
However, on stablecoins, the U.K. is taking a markedly different approach from its neighbors. While EU officials have generally treated even fiat-backed stablecoins with suspicion, the FSMB paves the way for their widespread usage in wholesale transactions.
And although Griffith said that “probably the first use case of a sovereign digital currency would [be] wholesale settlement,” he expressed certainty that “a wholesale fiat-backed stablecoin will get there first.”
Ultimately, however, the U.K. government’s approach is not to favor stablecoins over CBDCs. “It is definitely not either/or,” Griffith stressed in his comments last week.
Instead, he noted that “the issue with regulating fiat-backed stablecoins as a means of payment is that they are here and now. They exist today. There will be displacement and dislocation if we do not come forward with regulation.”
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