Queen Elizabeth’s Treasury reveals how crypto-assets fit in post-Brexit UK
The UK announced earlier this week its strategic decision to become a global crypto hub. Here’s what you need to know.
Her Majesty’s Treasury announced its strategic plan on Monday, ‘moves that will see stablecoins recognized as a valid form of payment as part of wider plans to make Britain a global hub for crypto-asset technology and investment.‘
Stablecoins are a type of digital asset or cryptocurrency that is backed by another underlying asset such as fiat currency, precious metal, commodity, or even another cryptocurrency. Examples include Tether (USDT), the Digix Gold now discontinued (DGX) and Wrapped Bitcoin (WBTC) which are backed by the US dollar, gold and bitcoin respectively. A complete list of stablecoins is compiled by The Blockchain Council. The goal of these stablecoins is to mitigate the risk of price volatility while providing better ownership utility offered by the underlying blockchain platform that hosts these stablecoins.
So why now and why all the fuss?
Just last month the Biden administration issued an executive order to research and possibly implement regulatory policies for digital assets, including cryptocurrency and stablecoins. Stablecoins were once on the periphery of the financial system. This week however, the UK followed the US with an official mandate to assess and possibly create a regulatory framework for stablecoins as a form of payment.
However, it is not only about incremental innovation in search of financial efficiencies. Leading proponents of such PayTech innovation include Facebook’s Mark Zuckerberg who once proclaimed his company’s mantra, “Move fast and break things‘. In 2022, it should be as cheap, fast and seamless to transfer money internationally as it is to send emails. Unfortunately, it is not the case. The World Bank reported last year that “the global average cost for sending remittances was 6.30%â. A staggering friction on global economic activity that is felt disproportionately by emerging economies and their citizens who are often subject to much higher money transfer fees.
BigTech is coming for finance
The oligopolistic hold of many incumbent financial services companies is being disrupted by decentralized financial solutions (DeFi). Stable coins can be the thin end of this disruptive wedge. In an effort to respond, nation states are strongly equipped to innovate and evaluate these technologies so that they can be institutionalized. A hybrid pragmatism that exploits many advantages of DeFi without offering citizens a truly decentralized solution capable of granting them anonymity, or at least pseudo-anonymity, in their financial activities.
This middle ground may be the most sensible path, but it is decried by true decentralization purists. The benefits that stablecoins can bring to cross-border payments can be considered alongside innovations in central bank digital currencies (CBDCs) and their potential impact on monetary policy.
For stablecoins, where private enterprise has failed (see Diem’s ââremoval from Facebook), nation states must now fill the gap. Although this future fight for control of global finance may have moved from the traditional banking arena to that of the Metaverse, where Facebook and others are now targeting – see Zuck dollars.
Asia is ahead
Asia-Pacific nations were quicker in the CBDCS draw, with the Chinese digital yuan is currently being tested in more and more cities. More than ten major cities to be exact! Similarly, India has the largest identity system in the world (1.3 billion people) on the Aadhaar platform which facilitates peer-to-peer, vendor-to-vendor and inter-bank transactions.
Yes you can’t beat Bitcoin and DeFi so you better consider joining them lest a technological gap develop between East and West. It is therefore perhaps unsurprising that Chancellor Rishi Sunak and Economics Secretary John Glen outlined the UK’s moves to legislate for a “financial market infrastructure sandbox” to help companies to innovate. Such an initiative would be spearheaded by the UK regulator, the FCA, using a âCryptoSprintâ â a two-day event that brings together experts from industry and academia to help create a new regulatory framework. Moreover, the The Royal Mint of the United Kingdom was even commissioned by the British government to create an NFT by this summer.
Overall, in a bid to work more closely with the industry, the UK’s tech pivot seems like good news for crypto.
Nonetheless, one could interpret these moves as too passive on the part of the UK â arguably a quick follower by nature rather than a truly dynamic one in a world of unprecedented technological change. But it’s not the role of nations to behave like tech start-ups do. They can’t afford to be wrong when operating on such a scale, so although not state of the art, such moves from the UK, and the US for that matter, are both welcome and to be applauded.
Further down the road we are likely to see stablecoins playing a more active role in our economic life, whether we are really aware of it or not. The ensuing challenges of taxation and regulatory permissions need to be assessed, but those are questions for another day. For the moment at least, we seem to be heading in the right direction.