For others, the message is perhaps that the crypto world and its technologies are a very long way from influencing, let alone changing, the way financial services, including payments, are delivered at scale in the real world. It is, as I said earlier, very difficult to predict which technologies will be successful and when and how they might begin to change the way we do things. The bursting of the dot.com bubble in the early years of this century did not herald the end of the development of internet commerce though it took longer than its original enthusiasts imagined and emerged in a very different form, dominated by big tech platforms. Our work on a digitally native pound is driven by the trends we now see both specifically in payments, including the reducing role of cash, and more generally in the increasing digitalisation of daily life. It is motivated by two primary concerns. First, that in a world in which new, tokenised forms of money emerge, enabled by new technology, we remain able to ensure that all forms of money that circulate in the UK are robust, interchangeable without loss of value and denominated our unit of account – the pound sterling. Physical cash plays a role in ensuring that, at present, all forms of commercial bank money in the UK have to be redeemable in cash - Bank of England money - on demand in cash and without loss of value.
This, if applied to ‘real world’ assets, like equities, could offer a substantial improvement in the efficiency of financial market infrastructure and reduce risks by enabling instant settlement – T plus now[5]. There are of course risks in such integration as I mentioned earlier, whether it happens organisationally or technologically. The Bank of England is working with the FCA and the Treasury to set up a regulatory ‘sand box’ for developers to explore whether and how those risks can be managed to the level of assurance we expect from the current system[6] So my third reason for bringing the activities of the crypto world within the relevant regulatory frameworks is to foster innovation. This may appear counter intuitive to those who see regulation as opposed to innovation. But, as I have said before, ‘people do not fly in unsafe aeroplanes’. Innovation may start in unregulated spaces. But it will only be developed and adopted at scale within a framework that manages risks to existing standards. And by holding innovative approaches, using technological advance, to the same standards as existing approaches we can ensure that the benefits of new technology and new business models actually flow form innovation rather than from regulatory arbitrage. This in turn, determines the answer to the second question of ‘how’ regulation should be extended to these areas. The guiding principle should be ‘same risk, same regulatory outcome’.