In his farewell speech, Sir Jon Cunliffe of the Bank of England took stock of how Facebook’s 2019 announcement of its planned Libra cryptocurrency jolted central banks and regulators to address digital money and payments with greater urgency.
While Libra itself ultimately failed to launch and was rebranded last year, Cunliffe said its unveiling put a spotlight on the flaws in existing cross-border payment systems. It also accelerated initiatives around central bank digital currencies (CBDCs) and stablecoin regulation.
Cunliffe, the outgoing Deputy Governor for Financial Stability, will depart the central bank next week after a term spanning key crypto developments.
Libra Laid Bare Cross-Border Payment Issues
Though Libra raised serious regulatory concerns, Cunliffe said its vision highlighted just how outdated and fragmented the global payment architecture had become.
Cunliffe said Libra demonstrated how new technologies could potentially exploit these systemic inefficiencies. This provided impetus for policymakers to not only scrutinize crypto risks but also address the flaws that inspired such innovations.
In response, the G20 directed the development of a comprehensive roadmap to modernize cross-border payments by 2027. The Committee on Payments and Market Infrastructures (CPMI), which Cunliffe chaired, established quantitative targets across payment types to guide improvements.
Cunliffe cited early progress but cautioned that the roadmap objectives remain challenging. He outlined key priority areas in the next phase:
- Upgrading central bank and private sector payment systems
- Implementing data standards like ISO 20022 for better information flows
- Linking domestic fast-payment networks across borders
- Updating anti-money laundering recommendations for faster, safer cross-border transfers
- Applying international principles domestically to regulate stablecoins used for mainstream payments
- Enhancing competition by expanding access to payment and settlement systems
While the Libra catalyst has passed, Cunliffe stressed that continued investment is vital to delivering the G20 targets and unlocking the economic benefits of more efficient global payment flows.
Central Bank Digital Currencies Debated
Beyond payments, Cunliffe said Libra also accelerated central bank interest in issuing digital fiat currencies. The Bank of England and many peers began researching CBDCs in the project’s wake.
Cunliffe was careful to note that no decision has been taken on a UK retail CBDC. However, he said current trends make it likely the Bank of England will need a “digital pound” by the end of this decade.
He outlined two proposed motivations for a CBDC:
- Providing a digital form of state money as physical cash use declines
- Supporting competition and innovation by enabling a public platform model for money
Under this model, the central bank issues the digital pound and core payment infrastructure. Regulated private firms build customer-facing wallets and payment services atop this foundation.
The Bank of England’s consultation on a CBDC design highlighted privacy, programmability, and cash decline concerns among 50,000+ responses. Cunliffe assured that privacy protections can be baked into the technology. He also noted that the UK recently legislated to safeguard cash access.
Cunliffe observed that critics also debated aspects like digital wallet caps to prevent destabilizing shifts from commercial bank deposits. He wryly noted objections ranging from disintermediating banks to lacking use cases.
Cunliffe emphasized collaborating with the private sector to refine CBDC platform use cases and adoption estimates. Legislation would be introduced before any UK launch.
Regulating Systemic Stablecoin Payment Platforms
Finally, Cunliffe spotlighted Libra’s role in galvanizing stablecoin regulation, which focused on payments rather than crypto speculation.
The Bank of England is developing a proposed regime for retail stablecoin platforms. Cunliffe outlined considerations including:
- Demonstrating clear benefits versus risks from enabling innovation
- Applying robust safeguards like high-quality collateral due to a lack of deposit insurance
- Requiring a regulated entity responsible for end-to-end risk management
- Introducing limits to begin with to control adoption pace and financial stability risks
- Distinguishing stablecoin business models from deposit-taking banks
Cunliffe reiterated that while the Libra alarm may have passed, central banks must remain alert to payment and currency innovation. Prepared regulation can harness promising advances safely.
As he concludes his term, Cunliffe’s remarks reveal how profoundly crypto has shaped central banking priorities since 2019. With digital assets now embedded across finance, officials like Cunliffe will continue grappling with their implications for years to come.