Bank of England's Jon Cunliffe: UK may need digital pound

Key points: 

• Parliament is discussing the Financial Services and Markets Act, which could regulate cryptocurrencies as a financial instrument and give UK regulators, including the Bank of England, more control over the industry.
• Under this framework, the BoE intends to regulate large issuers of payment-oriented crypto assets such as stablecoins. 
• The Bank of England is also considering issuing a digital pound.

Bank of England (BoE) deputy governor Jon Cunliffe said a digital version of the British pound may be needed in discussions over whether the collapse of cryptocurrency giant FTX would affect the decision to issue the pound.

While he initially saw no link between the collapse of cryptocurrency giant FTX and the central bank’s work on central bank digital currencies, Cunliffe said on Monday that he understood the concern.

“Over the past few days, I’ve had some comments that the debacle of FTX shows that we need to move on and spend digitally native pounds - and FTX shows that we don’t need to,” Cunliffe said in a speech at Warwick Business School's Gilmore Center Policy Forum meeting on DeFi and digital currencies.

The vice president said the comments were warranted, as FTX in particular is "a symbol of these new technologies and their potential to revolutionize financial services and the form of money."

Sam Bankman-Fried's billionaire cryptocurrency firm FTX filed for bankruptcy in the United States this month after a liquidity crisis sparked by an article led to its collapse. On Monday, Cunliffe said cryptocurrencies need to be included in the UK's relevant policy framework to protect consumers, investors, financial stability, and innovation. Cunliffe has previously called for expanding existing financial regulations to include cryptocurrencies.

Parliament is discussing the Financial Services and Markets Act, which could regulate cryptocurrencies as a financial instrument and give UK regulators, including the Bank of England, more control over the industry. Under this framework, the BoE intends to regulate large issuers of payment-oriented crypto assets such as stablecoins. Cunliffe said on Monday that the central bank will launch a consultation on stablecoins next year that will examine “requirements for corporate structure, governance, accountability, and transparency” to meet standards expected from other parts of the financial system.

"The FTX example underlines how important these aspects are," he admitted.

The Bank of England is also considering issuing a digital pound. Cunliffe said the BoE's work on a "digitally native pound" was being driven by trends in payments "including the diminishing role of cash and more generally the increasing digitization of everyday life".

“As regulators, our approach should be open-ended — that is, we should be willing to consider whether a level of certainty comparable to traditional finance can be achieved, and if so, how. But we should also be clear that where it is not possible. We don’t want to see innovation at the expense of greater risk when we’re not doing it,” Cunliffe said.