Queen Elizabeth’s Treasury Reveals How Cryptoassets Fit Into Post-Brexit U.K.

The U.K. announced earlier this week its strategic move to become a global hub for crypto. Here’s what you need to know.

Her Majesty’s Treasury announced on Monday its strategic, ‘moves that will see stablecoins recognised as a valid form of payment as part of wider plans to make Britain a global hub for cryptoasset technology and investment.’

Stablecoins are a type of digital asset or cryptocurrency which is collateralised by another underlying asset such as a fiat currency, a precious metal, a commodity or even another cryptocurrency. Examples include Tether (USDT), the now ceased Digix Gold (DGX) and Wrapped Bitcoin (WBTC) which are backed by the U.S. Dollar, gold and Bitcoin, respectively. A comprehensive list of stablecoins is compiled by The Blockchain Council. The objective of such stablecoins is to mitigate the risk of price volatility whilst also providing enhanced utility of ownership afforded by the underlying blockchain platform which hosts such stablecoins.

So, why now and why the fuss?

Just last month the Biden administration issued an Executive Order to research and potentially implement policies for the regulation of digital assets including cryptocurrency and stablecoins. Stablecoins were once on the periphery of the financial system. This week however, the U.K. has followed the U.S. with an official remit to evaluate and possibly create a regulatory framework for stablecoins as a form of payment.

However, this is not just incremental innovation in search of financial efficiencies. Leading proponents of such PayTech innovation include Facebook’s Mark Zuckerberg who once famously proclaimed his company’s mantra to, ‘Move fast and break things’. In 2022 it should be as cheap, quick and transparent to move money internationally as it is to send email. Unfortunately, that is not the case. The World Bank reported last year that, ‘the global average cost for sending remittances was 6.30 percent’. A staggering friction on global economic activity which is disproportionately felt by emerging economies and their citizens who are oftentimes subject to much larger money transfer fees.

BigTech is coming for finance

The oligopolistic grip of many incumbent financial service companies is being disrupted by decentralised financial solutions (DeFi). Stablecoins may be the thin end of that disruptive wedge. In an effort to respond, nation states are being strong-armed to innovate and evaluate such technologies so that they may be institutionalised. A hybrid pragmatism which harnesses many of the benefits of DeFi without affording citizens a truly decentralised solution able to grant them anonymity, or at least pseudo anonymity, in their financial activities.

This middle ground may be the sensible route forward but is decried by purists of true decentralisation. Benefits that stablecoins may bring to cross-border payments can be viewed in parallel to the innovations of central bank digital currencies (CBDC’s) and their potential impact on monetary policy.

For stablecoins, where private enterprise has failed (see Facebook’s Diem withdrawal) nation states must now step in to the breach. Although perhaps this future fight for control of global finance has moved from the traditional banking arena to that of the Metaverse, where Facebook and others are now targeting – see Zuck Bucks.

Asia is ahead

The Asia-Pacific nations were quicker on the draw for CBDCS’s, with the Chinese Digital Yuan now being piloted across evermore cities. Over ten major cities to be exact! Similarly, India boasts the largest identity system in the world (1.3 billion people) on The Aadhaar platform which facilitates transactions for peer-to-peer, vendor-to-peer and interbank purposes.

If you can’t beat Bitcoin and DeFi then you had better consider joining them for fear of a technology gap opening up between East and West. It is perhaps therefore unsurprising that Chancellor Rishi Sunak and Economic Secretary John Glen outlined U.K. measures to include legislating for a ‘financial market infrastructure sandbox’ to help firms innovate. Such an initiative would be led by the British regulator, The FCA, using a ‘CryptoSprint’ – a two-day event that brings industry and academic experts together to help create a new regulatory framework. Moreover, the U.K.’s Royal Mint has even been tasked by the U.K. Government to create an NFT by this Summer.

Overall, in a bid to work more closely with industry, the U.K.’s tech pivot would appear to be good news for crypto.

Nonetheless, it could be construed that these moves are too passive by the U.K. – arguably fast follower in nature rather than truly dynamic in a world of unprecedented technological change. But, it is not the role of nations to behave as tech start-ups do. They cannot afford to get it wrong when operating at such scale so although not bleeding edge, such moves by the U.K., and the U.S. for that matter, are both welcome and to be applauded.

Further down the road we will likely see stablecoins play a more active role in our economic lives, whether we are actually aware of them or not. Consequential challenges of taxation and regulatory permissions must be evaluated but those are questions for another day. For the moment at least, we appear to be heading in the right direction.