Central banks going crypto. Is it a good idea?

The answer from crypto aficionados is an emphatic “no”. After all, most of those who are serious about bitcoin or ethereum got involved because they want to overturn existing financial hierarchies, and they believe that central bankers are too old-fashioned to understand the innovative power of digital assets.

The subject will be discussed at Banking 4.0.

an article written by Gillian Tett – chair of editorial board – Financial Times

A year ago, the Bank for International Settlements (BIS) launched half a dozen “innovation hubs” that would embrace initiatives in the crypto and cyber worlds. Most notably, it is helping to create a string of central bank digital currency (CBDC) projects across the globe. About 114 countries were exploring CBDCs at the end of 2022, 20 were piloting them and 11 had launched them according to the Atlantic Council, the international affairs think-tank. The Bank of England, which has been mulling a CBDC since late 2021, has just announced that a “digital pound” is likely to be needed in the future.

Is this a good idea? The answer from crypto aficionados is an emphatic “no”. After all, most of those who are serious about bitcoin or ethereum got involved because they want to overturn existing financial hierarchies, and they believe that central bankers are too old-fashioned to understand the innovative power of digital assets. Moreover, they fear that the only reason establishment institutions such as the BIS are playing with CBDCs now is to crush the private-sector tokens that might challenge traditional or “fiat” currency, not with an outright ban on those challengers but by stealing their cyber clothes instead.

The conspiracists are partly right. At a recent meeting of central bankers and regulators that I attended in that Basel tower, there was a clear belief, or hope, that CBDCs could displace most private tokens in the future, particularly given that crypto assets such as bitcoin have collapsed in value, and scandals such as the one at FTX are sparking a regulatory crackdown. Indeed, Agustín Carstens, BIS head, says recent events mean that the “battle has been won” between crypto and fiat — by central banks.

Maybe so. Yet not everyone inside those central bank towers thinks it’s necessary or sensible to play with CBDCs. The innovation could leave the banks controlling vast quantities of citizens’ data and undermine the role of commercial lenders. It may not even produce faster payments for citizens. A recent report from the House of Lords was so unimpressed that it asked whether CBDCs were “a solution in search of a problem”, while Tony Yates, a former adviser to the BoE, argues that “the huge undertaking” is simply “not worth” the costs and risks. Jay Powell, chair of the Federal Reserve, admits that he is “legitimately undecided on whether the benefits outweigh the costs or vice versa”.

Meanwhile, the BIS is trying to hire employees from the tech world, and some central bankers are taking off their jackets. But mixing the Basel tribe with the tech tribe is not going to be plain sailing, least of all since each believes that it should have the upper hand.

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About the author

Gillian Tett is chair of the editorial board and editor-at-large, US of the Financial Times. She writes weekly columns, covering a range of economic, financial, political and social issues and co-founded Moral Money, the FT sustainability newsletter.

She has been named Columnist of the Year (2014), Journalist of the Year (2009) and Business Journalist of the Year (2008) in the British Press Awards, and received three awards from America’s Society of Business and Economic Writers Awards. She is a best-selling author and received the Royal Anthropological Institute Marsh Award and the American Anthropological Association President Medal for her work in social science.

Tett’s past roles at the FT have included US managing editor, assistant editor, capital markets editor, deputy editor of the Lex column, Tokyo bureau chief, and a reporter in Russia and Brussels.