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BoE Speech: 4 Areas at the Intersection of Payment Innovation, Tokenization, and Money

Bank of England | Sir Jon Cunliffee speech | April 17, 2023

Digital pound and tokenization of money Sir Jon Cunliffe - BoE Speech:  4 Areas at the Intersection of Payment Innovation, Tokenization, and Money

In his speech at Innovate Finance Global Summit (London), Jon Cunliffe looks at four areas where the tokenisation of money is now being explored. 

  • Sir Jon Cunliffe, Deputy Governor, Financial Stability, predicts that the trend towards electronic money will continue due to the digitalisation of everyday life, further developments in payment systems, infrastructure and regulatory frameworks, and newer technologies that have emerged from the crypto world, such as tokenisation, encryption, distribution, atomic settlement and smart contracts. These technologies offer the prospect of the 'tokenisation' of financial and other assets, including money, and a more extensive, faster and more secure programming/automation of transactions.
  • The potential tokenisation of money and development of new ways of transferring it in transactions has major implications for the Bank of England, which is responsible for ensuring that payment systems work seamlessly and without disruption in the UK and for ensuring that each of the monies circulating in the UK are both robust and uniform.

See:  AltFi Series (2 of 3): Regulatory Landscape on Stablecoins

  • 1. While stablecoins offer some advantages, such as faster and cheaper transactions, they also pose significant risks such as lack of transparency, AML compliance, and the potential to undermine financial stability.
    • The regulatory frameworks need to be put in place to address these risks, and that stablecoins should be subject to the same standards and regulations as other forms of payment.
    • Note that tokenized bank deposits may offer similar functionality and efficiency to stablecoins, while being subject to existing regulatory frameworks and protections for depositors.
  • 2. The tokenization of bank deposits as a new form of digital money to be used on new payment rails.
    • Tokenized bank deposits would offer some or all the functionality and efficiency claimed for stablecoins, allowing bank deposits to compete better with non-bank payment coins.
    • The tokenization of bank deposits would allow them to circulate freely as ‘tokenized deposit money,' constituting claims on the issuing bank that could be held in a wallet without the holder having an account at the issuing bank.
    • However, the tokenization of bank deposits raises questions about how deposit insurance would operate in case of a bank's failure and how anti-money laundering and other regulations would operate to prevent illicit finance.

See:  UK Proposes Regulations That Would Recognize Stablecoins As A Form Of Payment

  • 3. Digital pound: Central banks may issue central bank digital currencies (CBDCs) for retail or wholesale purposes to anchor the value and robustness of all monies circulating in the country and ensure competition and innovation in the development of new functionalities using tokenized money.
    • The Bank of England has published a consultation paper on the Digital Pound, a Sterling digital currency for general-purpose retail use, and is exploring options for tokenized wholesale money.
    • Tokenization of financial assets, atomic settlement, smart contracts, and other emerging technologies have the potential to transform wholesale financial transactions and enable a more extensive, faster, and more secure programming/automation of transactions.
  • 4. Bank of England is actively working to ensure that new forms of money are robust and uniform:
    • BoE is developing a regulatory framework for stablecoins, ensuring that they meet the same standards as other forms of money in terms of safety, stability, and consumer protection.
    • BoE is collaborating with other central banks and international organizations to develop common standards and shared principles, ensuring a consistent approach across jurisdictions.
    • The Bank is engaging with the private sector and fostering innovation in digital currencies, while ensuring that risks are effectively managed, and the financial system remains stable and resilient.

Read the full speech --> here


NCFA Jan 2018 resize - BoE Speech:  4 Areas at the Intersection of Payment Innovation, Tokenization, and MoneyThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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