It is, of course, possible that neither of these two reasons - investor protection and protection against financial stability risk - will be relevant because the very instability and riskiness of the world of unregulated crypto finance, most recently demonstrated by FTX, will in the end ensure that the sector cannot grow. Indeed, some have argued for regulators grappling with the crypto world to keep it outside the regulatory framework to ensure that users’ ‘caveat emptor’ concerns prevents both growth and connection with mainstream finance[4]. And that leads to my third reason. Forecasting the direction and pace of technological innovation is an even more uncertain game than economic forecasting. Promising technologies fall by the wayside; unexpected ones flourish. And technologies combine in ways that cannot be anticipated. But the technologies that have been pioneered and refined in the crypto world, such as tokenisation, encryption, distribution, atomic settlement and smart contracts, not only seem unlikely to go away as our everyday lives become more ‘digital’, but may well have the potential to improve efficiency, functionality and reduce risk in the financial system. A potential example of this is the integration of functions in ‘smart contracts’ that I mentioned earlier. A possible use case for such integration, which has been pioneered in the defi world is the combining the functions of trading, clearing and settlement of tokenised financial assets into a  Page 6  single, instantaneous contract, rather than being carried out in sequence by three separate institutions over a number of day.
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.