UK to become global hub to launch and scale crypto
"We want to position the UK as a pro-innovation jurisdiction"
On Monday, John Glen, Economic Secretary to the Treasury of the United Kingdom, gave the keynote speech at the Innovate Finance Global Summit.
From his preamble:
We’re the leading European fintech hub… and second only to the U.S. worldwide.
Almost half of the fintech unicorns in Europe are based in the UK… and last year, the sector attracted more investment than France, Germany, Sweden, and the Netherlands combined.
That matters. Because, as the Chancellor told you last year, part of the way we become that pre-eminent financial centre that he describes is by having the technology here to do things better.
What is he talking about?
Never in the history of commerce has there been invention as hyped and misunderstood as Distributed Ledger Technology and Blockchain.
But what I mean is the extraordinary, mercurial, underlying technology which makes ‘crypto’ possible… and which we can be pretty sure is going to have profound effects across multiple domains.
If there is one message I want you to leave here today with, it is that the UK is open for business - open for crypto businesses.
How will England move towards incorporating crypto?
The FCA [Financial Conduct Authority] have announced today that they will be organising the first of a series of ‘crypto-sprints’ next month, involving scores of industry experts.
The sprints will inform FCA policy thinking in real time, and participants will be tasked with wrangling some of the legal, technical and regulatory challenges the industry faces, and then coming up with practical solutions which, we the government, will take forward as quickly as we can.
Unlike the EU and US, the UK has a small number of regulators, and central government sets the overall framework and can take decisive action. So, we can move very nimbly.
John Glen must have been tickled pink to be able to publicly speak about the UK’s concerted efforts to become a global crypto hub through the use of stablecoins. Stablecoins are “cryptocurrencies designed to have a stable value relative to traditional currencies, or to a commodity such as gold, to avoid the volatility that makes bitcoin and other digital tokens impractical for most commerce.” (Back in June, the Bank of England would not commit to issuing its own central bank digital currency, and many global central banks remain in the exploratory phase with China and South Korea in pilot stages).
At the moment, it is unknown which and how specific stablecoins will be brought into the UK payments framework, but what is clear is the rapid adoption of safe and sustainable cryptocurrencies is a very high priority. In theory, using stablecoins should minimize financial stability risks.
Typically the magnitude of risks could cause an endeavor to be reevaluated and potentially shelved. In this case, it seems the UK is hurtling towards a $2 trillion cryptomarket and will not be stopped.
Environmental concerns? The Secretary touted the UK’s leadership in green finance despite the University of Cambridge Bitcoin Electricity Consumption Index reporting that the annual energy consumption of Bitcoin alone dwarfs the total annual electricity consumption by Norway (5M+ population), the Philippines (109M+ population) or Pakistan (220M+ population).
Legal issues? In the coming weeks, British Finance Minister Rishi Sunak will announce a new crypto regulatory framework (likely addressing the legal status of blockchain-based communities known as decentralized autonomous organizations), but as Glen said in his speech, he believes the UK will find a way to ‘move nimbly’ through regulations. In fact, Glen believes the English legal system is an asset, which will provide investor ‘peace-of-mind’ security for including digital currencies and assets in their investment portfolios. In terms of loans and earning interest on decentralized finance loans, more information will soon come with initial prioritization given to removing existing disincentives for fund managers to hold cryptoassets in their portfolios today. Regarding economic sanctions and money laundering (e.g. Russia), Glen points out that cryptoassets are already under consideration in current policies, but the FCA has not accepted the majority of crypto firms to date due to potential financial criminal activity.
Tax code? - no biggie. Distributed ledger technology (DLT), a decentralized digital ledger of transactions, will start being used for customs and international trade to ease goods imports and could possibly be used to issue debt instruments, though it is unclear if this would happen this year or much further down the line. Also, the Organisation for Economic Co-operation and Development, which develops international policies for at least its 38 member nations (including much of Europe and the US), will continue to build out a framework for taxing cryptoassets and promoting tax transparency. How this will be implemented is understandably TBD.
Global vision (or lack thereof)?
Just before the end of WWII, representatives from 44 nations met in Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference, known more commonly as the Bretton Woods Conference. Prior to the war, the Great Depression had bred instability throughout political and economic structures across the Western world and beyond. President Roosevelt and those at Bretton Woods firmly believed that free trade promoted prosperity and would create a more peaceful global community.
Bretton Woods delegates “envisioned an international monetary system that would ensure exchange rate stability, prevent competitive devaluations, and promote economic growth.” Multiple meetings over two years preceded the conference, which resulted in the creation of the International Monetary Fund to monitor foreign exchange rates and the World Bank to help reconstruct war-torn nations and help economically grow less developed nations. Part of the conference’s success (or failure depending on your POV) was all nations in attendance agreed to settle international balances in US dollars, which were at the time convertible to gold at a fixed rate. Dozens of nations collaborated together towards a common vision of peace and economic security. (Had a new currency been created or President Richard Nixon kept the dollar pegged to gold past 1971, perhaps the system would have lasted longer.)
Today, the Atlantic Council reports 87 countries are exploring a central bank digital currency, the UK is actively building a framework to become a global crypto hub and the US may follow the UK’s lead as evidenced by Biden’s Executive order on digital assets and legislation being introduced by New Jersey Representative Gottheimer. Perhaps in the background, representatives are speaking together about whether a decentralized, multiple digital currency system is a more effective solution to promote global peace and economic security going forward. Yet, if that were the case, it would seem that someone or some nation would make that case publicly. Instead, the UK can barely contain its jubilance for getting to launch a Royal Mint NFT and are framing digital currency innovation as a rapid response to cryptocurrency growth and a burgeoning market opportunity.
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