The Bank of England links productivity with tokenization

Posted On: July 16, 2023

At the Mansion House for the Financial and Professional Services dinner, Bank of England (BoE) Governor Andrew Bailey highlighted the huge role tokenization of money can play in productivity. And by terms like “token deposits” or “new digital money”, he’s not just referring to CBDCs (Central Bank Digital Currency: central bank digital money). It refers to money that can be drafted by banks and other institutions. A role focused on increasing the productivity of the UK economy in general and the financial and payments system in particular. The new digital money as an innovation he compares to the iPhone and trains.

Tokenization and lifestyle of the new global middle class

Bank of England tokenization

We already know how traditional the British are, so they took advantage of their cycle ceremony to introduce depth charges. The festivities rebounded last year, after the pandemic stopped, and keynote speeches are usually reserved for the nation’s highest central bank authority. Former British and Irish ministers, ambassadors and various authorities and prominent figures from the city of London attended. In short, something important is expected to be said. And, in addition to the speeches repeatedly endorsed by the existentialist philosopher Kierkegaard, important points were made. Within the traditional framework, there are demonstrations that, from an institutional point of view, must be considered revolutionary.

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The speech began by emphasizing the importance of improving supply chains and productivity in the UK. Productivity problems in Spain are designated as the main problem in the report Spain 2050: Foundations and proposals for a long-term national strategyconducted by the National Office of Foresight and Strategy. A report that doesn’t seem to read a single candidate for the general election on July 23.

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Productivity beyond electoral debate in Spain

There are no proposals directly related to the need to increase productivity in the country in the programs of the main parties. A rather useless report, considering its application, which renders the work of the talents called upon to carry it out useless. Well, we’re not going to do a White House (“What a scandal, what a scandal! I’ve found that played out here”), because we already know what this report usually ends with. There is a graveyard of reports that do nothing but increase CV value and maybe pockets of experts who help make it happen. To continue the comparison, the unemployment rate in the UK is 3.8%. Spain leads the unemployment rankings in the EU.

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Pointing out the main challenges for the UK economy, Bailey outlined the problems, with inflation at the forefront, and the opportunities presented to deal with it. In times of inflation, the goal of saving money becomes especially relevant. He realized that this might sound vague and spent much of the rest of his speech clarifying what he meant by money and saving. Money can be deposited in money transactions, in payments. Thus introduced into the nature of money. Of course, it is said by whoever heads the institution to protect our money -the bankers, for example- and the value of our money. Well, in this case, from a British citizen’s money.

Digital money to guarantee our money

Now, as you pointed out, in the first function, protecting our money, it’s protection limited to an amount (85,000 pounds in the UK, 100,000 euros in Spanish, if the bank where the deposit is kept goes bankrupt. PBut what happens to the money that exceeds that limit? Does it evaporate and depositors lose it? Is money that is no longer money? Doesn’t a limited deposit guarantee lead to limited trust in the bank and their system? Without saying further that amounts held in bankrupt banks must be guaranteed, Bailey expressed the authorities’ concern at the lack of regulation in this regard. After the productivity challenge, another part of the discourse framework is our money security function.

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And this is where technology comes in, with its risks and opportunities. Faced with rumors of the bank’s poor financial health, depositors are no longer rushing to take their places in front of the branch. They act, when they can, in the digital realm. Money is digital. Although there are various forms of digital money. This is where the reference to cryptocurrencies is introduced, which leaves the audience somewhat shaken.

Smart contracts in digital money

Neither the cryptocurrency to be used, nor the stablecoins, were initially considered by Bailey to be money. First, because of its high volatility and its relation to highly speculative investments. Stablecoins because at the moment -and this must be emphasized- they do not meet the requirements of what is considered safe money. That is, money whose function is to protect. This is where the gems of the night are presented:”Far more promising, in my opinion, is the prospect of better forms of digital money meeting both tests. [para ser considerado dinero seguro]. And this is quite possible and achievable.”.

The necessary middle class asset tokenization and cryptoculture

Digital money is placed at the center of economic policy to increase productivity. He stressed that digital money could be assigned a range of functions, such as smart contracts, that would be impossible with “ordinary money”. I would not exchange the money myself, but what can be done with it:”when we talk about programmable money in this sense, we mean controlled and programmable by owners and users, not by meddling authorities”. This means that not all digital money has to be offered by a central bank. Not everything has to be CBDC. Perhaps another institution that offers well-designed digital money. CBDC is referred to as an important step. But that was it: a move, one that opened up a debate about the future of money in the UK. He cited the more than 50,000 inquiries received about CBDC projects in the country.

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Stablecoins issued by banks and non-banks

Bailey initially used the concept of “the new digital money” and, later, in terms of indicating the role that commercial banks could continue to have in the financial system, he referred to “token deposits”. The tokenization of the financial system will increase the efficiency of transactions, national and international payments, resulting in an increase in productivity in general.

He was talking, as he just clarified, about stablecoins, which can be issued by banks and non-banks alike. Stablecoins that must pass the appropriate tests. Central banks will continue to have a function to protect our money and its value, whether in the form of notes, metal coins, or bits programmed by sources other than the central banks themselves.

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Profile Andrew Bailey is a technocrat, who in his professional career has held various responsibilities and functions within the Bank of England itself. That is, someone who measures words and who is considered to be very synonymous with institutions. It’s impossible to think of dalliance, of any kind, to say the least. What it says is what the Bank of England says.

Tokenized system horizon

A final note on the voices of economic and financial truth that have been governors and former central bankers. Among the fortune-tellers and certifiers of economic reality in their respective countries, they seem the only ones willing to speak the truth to the morning star. Do it from the management of the underbelly of the macroeconomic and financial system. Therefore, it is already known what those who invited the central bank governor expected.

So far the similarities. At the end of his speech, Bailey explained how the BoE is working for technological innovation in the UK financial system, including the horizon of tokenized systems. This is not talk to talk. This is preparing for the future of the City, as a global financial center, and the country.