Crypto ’Not Practical’ For Payments, But CBDC Could Offer Solution, Says BoE’s Bailey

May 25, 2022
Andrew Bailey, governor of the Bank of England (BoE), has cast doubt on the idea that crypto could evolve into a mass payments solution, while suggesting instead that central bank digital currency (CBDC) is a more likely candidate.

Andrew Bailey, governor of the Bank of England (BoE), has cast doubt on the idea that crypto could evolve into a mass payments solution, while suggesting instead that central bank digital currency (CBDC) is a more likely candidate.

Speaking on the"‘Jimmy's Jobs of the Future" podcast with Jimmy McLoughlin, a former Downing Street advisor, Bailey said that although crypto has made significant contributions to financial innovation, he does not believe it has potential as a payments system.

“Underpinning crypto are some important technological innovations in areas like blockchain and distributed ledger technology,” he said.

“I think there is a lot of promise and a lot of use being made of these technological innovations already, and I would expect that to continue.

“But in terms of payments, I don't think it will be crypto. In a sort of bitcoin sense of the term, I don't think that's really a practical means of payment.”

Bailey went on to say that these innovations will continue to drive an “increasing transformation” towards digital technology, but when it comes to digital currency itself, he believes that crypto will struggle to compete with centralised alternatives.

“We are looking at the question of central bank digital currency (CBDC), for instance,” he said. “We have a lot of work going on in that, and many other central banks are doing the same thing to decide whether that's the way forward.

“So I think we will see digital technology and digital payments growing the economy, but precisely what forms of crypto will survive to widespread use is, I think, still to be determined.”

Later in the interview, Bailey was asked whether he owns any bitcoin. His answer aligned with comments made last week by Christine Lagarde, president of the European Central Bank (ECB), who described the crypto-asset as “worthless”.

“To be honest with you, I'm probably not liked by the advocates of bitcoin, because I have said I don't think it has any intrinsic value,” said Bailey.

“It can have extrinsic value in the sense that people want to own it — and people collect all sorts of things — but it doesn't have intrinsic value.

“It's quite interesting when I make this point to different audiences,” he added. “Depending on the audience, it tells you quite a bit about who owns it. But no, I don't own it myself.”

Bailey’s comments will come as an annoyance to bitcoin advocates such as Jack Dorsey, founder and CEO of Block, formerly known as Square, who spent much of last week defending bitcoin against similar criticisms.

This followed comments made by Sam Bankman-Fried, founder and CEO of crypto exchange FTX, who said that bitcoin has no future as a payments system due to scaling problems, high transaction fees and environmental issues.

In response, Dorsey said the Lightning Network, a decentralised, second-layer solution, provides a scalable option that could make mass bitcoin payments fast, feasible and almost free to use.

Cash has a future

Towards the end of the interview, Bailey also gave clear indication of the BoE policy regarding the future of cash.

Asked if he thinks the UK will ever be a “cashless” society and, if so, how many years it will take, Bailey reiterated that the BoE has no plans to go cashless.

“We are very clear that we are not seeking the end of cash,” he said. “The reason I say that is because there are some parts of the population that rely on it, use it, who don't have access to technology, and who regard it as a budgeting tool.

“I think our job is to meet the public's demand for cash, but equally we recognise there are many people who are using it very little.

“So yes, for those people who want cash and have a reason for wanting it, it's not irrational, and I think it's our job to meet that demand.”

Last month, almost 30,000 Brits signed a petition that called on the government to make it illegal for retailers and services to decline cash payments.

In a response published on April 25, the government said it does not plan to mandate cash acceptance, but it has proposed legislation to support cash payments and cash deposit facilities, while allowing businesses the freedom to choose which forms of payment they accept.

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