Bank of England Governor Welcomes FinTech and Blockchain Revolution

Rage Comment : The Bank of England has actively participated in the interpretation of technology and application development from the beginning, and even issued digital currency, fully recognizing the potential of blockchain to increase GDP. Especially after the Brexit referendum, the UK urgently needs to revive the economy and prevent crises. Obviously, the new British Prime Minister cannot reverse the situation, but needs the central bank to lead the UK to use blockchain to consolidate the national economy. In addition to the Bank of England, the Bank of Canada is also very active. I hope that more central banks in other countries can participate in the development of this technology.

Translation: Annie_Xu

After the Brexit vote, former hard-core Brexit supporters quickly withdrew from public life and politics into a fierce battle for control. Theresa May emerged from the melee with a reputation for consistent style. But a turbulent Britain doesn’t need gatekeepers. It needs bold, innovative leaders.

The leader has quietly emerged from the ranks of Canadian Mark Carney, the governor of the Bank of England. Carney acted quickly to head off a Brexit panic. Now he can and should do more. He faces many daunting challenges: preventing a recession from turning into a depression, maintaining London’s pre-eminence as a financial center, encouraging entrepreneurship and ensuring that the economy benefits everyone, not just a few. Normally, a central bank would take on only one or two of these tasks.

But things are different now. Now Carney must chart a new path for Britain to prosper. So he must continue to embrace financial technology and accelerate the bank's blockchain deployment. Blockchain is a global distributed ledger that allows anyone, anywhere, to transfer, store and manage any type of asset, including securities, currency, intellectual property, votes, etc., at any time; while ensuring the process is secure and private, without the need for trusted intermediaries such as banks or government agencies. Blockchain is the first valuable digital medium, just as the Internet is the first valuable information medium.

On June 16, the Bank of England quietly released Carney’s Mansion House speech, the most important of the central bank’s speeches. The speech envisioned how blockchain and Internet finance will transform the global financial system and the British economy. “Both domestically and globally, Internet finance may bring a more compatible financial system for everyone; people have better access to information, stronger capabilities, and more convenient communication.”

Carney also announced that the central bank is piloting a digital currency project, using the "Britcoin" currency to better withstand crises such as Brexit, prevent financial crime, encourage honest competition, and promote innovation and financial inclusion as well as economic growth.

The central bank released its latest report on July 20, pointing out that replacing 30% of the currency in circulation with digital currency issued by the central bank can "increase GDP by three percentage points and maintain it permanently" and "significantly improve the central bank's ability to stabilize the business cycle."

Carney is not the first central banker to suggest that the central bank issue digital currency. The Bank of Canada recently announced a partnership with a group of the country's largest banks and blockchain innovation company R3 to pilot a digital Canadian dollar. As early as 2013, Ben Bernanke said that blockchain can "facilitate faster, more secure and more efficient payment systems."

Blockchain promises to improve three important roles of central banks. First, central banks set exchange rates, control the money supply, and manage monetary policy. Second, they are lenders of last resort and bankers to governments and other banks, maintaining financial stability. Finally, they often share regulatory responsibility for the financial system and the economy.

First, let’s look at financial stability. Carney said in his speech that Internet finance “has the potential to affect the transition of monetary policy, the safety and operations of regulated businesses, the flexibility of the financial system, and the characteristics of the shocks it may encounter.” Carolyn Wilkins, deputy governor of the Bank of Canada, pointed out that the issuance of digital currency by the central bank allows the central bank to respond to systemic shocks more quickly, measure the effectiveness of monetary decisions, and increase the transparency of financial markets.

Carolyn Wilkins

What about the regulators and identities of central banks? The traceability and immutability of blockchain technology can improve system stability. As Jesse McWaters of the World Economic Forum argued, perfect information allows regulators to use "less force." Blockchain innovations such as so-called triple-entry accounting (three timestamped accounts are saved to the blockchain, including loan information) allow regulators to better predict risks and irregularities so that they can be managed and prevented.

How can blockchain revolutionize monetary policy? Take a hypothetical example: after a new disaster (such as the Italian banking crisis), Carney decides to lower the base interest rate to stimulate economic recovery. But the current central bank needs to wait for days, weeks, or even months to see the results. Carney argues that with Internet finance and blockchain, "big data technology can tell the economic situation more accurately and promptly. Predictive capabilities will improve, just as better weather indicators give meteorologists better predictions." Therefore, weather forecasters don't need to know the wind direction.

Carney has done a lot to lay the foundation for the blockchain and internet finance revolution. Now he is leading this revolution from a very high position. He cannot go alone. The private sector, society, etc. must welcome this technology. Recently, the British House of Lords convened a group of major stakeholders in the blockchain field, including Ben Broadbent, deputy governor of the Bank of England, and Blythe Masters, CEO of Digital Asset Holdings and industry leader. Other central banks should also stand up. Wilkins agreed that "the Bank of Canada must work with other central banks to interpret the technology and its significance."

Deeper collaboration and decisive action (not white papers) will bring about change. To paraphrase Churchill: Never waste a good currency crisis.