Financial Times

CBDCs not worth the costs and risks, says former BoE advisor

Tony Yates, the former senior adviser of the Bank of England, argues that CBDCs are not worth the headache.

Central banks worldwide are pushing forward with digital asset projects despite the various crypto industry implosions of the past 12 months. China has rolled out its central bank digital currency (CBDC) to several cities and made it available for use at the Winter Olympics.

Many other central banks, including the Bank of England, are considering how to roll out a CBDC, while Nigeria’s CBDC has had poor uptake so far. India has already launched a pilot scheme, while Mexico has confirmed the launch of a digital peso .

However, Tony Yates, former senior adviser to the Bank of England, advises against CBDCs in a recently published opinion piece for the Financial Times. According to Yates, “The huge undertaking of digital currencies is not worth the costs and risks.”

CBDCs are already in place in most countries as most countries already have digital versions of cash, coins and notes. Yates, therefore, questions the motivations behind global rollouts of CBDCs, calling them “suspect.”

CBDCs could be a way of quashing crypto, including decentralized currencies such as Bitcoin (BTC). However, “Cryptocurrencies are such bad candidates for money,” he explains, adding:

“They don’t have money supplies managed by humans to generate steady paths for inflation and are hugely expensive and time consuming to use in transactions.”

Yates’ take on Bitcoin is unsurprising. He has tweeted several times about Bitcoin, claiming that most of Bitcoin’s use is “illicit” and “speculative.”

I would guess that most of the use is 1) illicit, and not discouraged by central bank provision and 2) speculative; if CBDC were to cause a large price drop, this could wipe out and discourage a lot of users.

— Tony Yates (@t0nyyates) April 17, 2021

Since Bitcoin use a public ledger available for everyone, its use for illicit purposes has decreased steadily over the years to less than 1% of total transactions, reports show.

On top of that, the layer-2 Lightning Network allows instant remittance payments, while other cryptocurrencies and even stablecoins continue to grow in use cases and development.

For Yates, introducing CBDCs is akin to “making central bank reserves more widely available than just to counterparties.” But in a world where the reserve currency is the U.S. dollar, the competition for a new global CBDC is counterproductive.

The Financial Times opinion piece summarizes that the most compelling arguments for CBDCs are around payments and settlement efficiency, but the debate is “mysterious.” Yates explains that it would be a colossal undertaking for the central bank to employ the staff to build and manage the hardware and software of a new payment system.

SBF received special treatment inside Bahamian jail: Report

Sam Bankman-Fried was held in the sick bay where he reportedly had access to running water, a toilet, a TV and vegan food.

Former FTX CEO Sam Bankman-Fried, who was remanded to the notorious Fox Hill Prison in Nassau, Bahamas, pending an investigation into the collapse of his exchange, had a different experience than many other prisoners.

According to Bloomberg, Bankman-Fried was held in the sickbay, where he had access to a toilet, running water, a TV, local newspapers, crossword puzzles and many other perks, including vegan food. Anonymous prison officials disclosed that the former CEO spent his days watching the news and reading articles about himself.

SBF’s prison experience appears to have been very different from what many other prisoners endure in their overcrowded, poorly ventilated, rat-infested prison cells, where they are forced to sleep on the floor using makeshift cards. Unlike other prisoners held at Fox Hill, the former CEO slept in a cot in the sick bay, which was occupied by only four other men.

A human rights report published by the U.S. State Department in 2021 revealed that conditions at Fox Hill were “harsh,” as prisoners suffered from overcrowding, poor nutrition, and inadequate sanitation and medical care. The report also alleged cases of physical abuse by correctional officers.

The report revealed that “maximum-security cells for men measured approximately six feet by 10 feet and held up to six persons with no mattresses or toilet facilities.” It also detailed the following conditions:

“Inmates removed human waste by bucket. Prisoners complained of the lack of beds and bedding. Some inmates developed bedsores from lying on bare ground. Sanitation was a general problem, and cells were infested with rats, maggots, and insects.”

The Office of the Attorney General of The Bahamas announced the extradition to the United States of Sam Bankman-Fried (“SBF”), the former CEO of FTX. SBF will depart from The Bahamas for the United States tonight. pic.twitter.com/WttWmNpIw4

— Latrae L. Rahming (DOC) (@latraelrahming) December 21, 2022

On Dec. 22, Cointelegraph reported that SBF was preparing to be extradited to the United States. A statement from the Bahamas Attorney General Ryan Pinder confirmed that Bankman-Fried was scheduled to depart the Bahamas for the United States on the night of Dec. 22.

British investment managers call for the blockchain-traded funds’ approval

The Investment Association believes the new technology will bring significant cost savings for end investors.

The Investment Association, a trade body representing British investment managers, is speeding up the approval of blockchain-traded funds with digital tokens substituting traditional shares by local government and financial regulators.

As the Financial Times reported on Thursday, the trade body is pushing the government to establish a new class of funds employing blockchain technology and create a new task force to examine how distributed ledger technology could accelerate the creation of new products and services.

The reasons behind such a push, according to the Investment Association, are the possible significant cost savings for end investors and the simplification of the existing procedures of buying and selling mutual funds.

Investment Association chief executive Chris Cummings urged boosting the competitiveness of the national financial services:

“Greater innovation will boost the overall competitiveness of the UK funds industry and improve the cost, efficiency and quality of the investment experience.”

According to FT, blockchain-traded funds could become available by the end of the second quarter of 2023 if the Financial Conduct Authority (FCA) gives its regulatory approval. As the newspaper adds, a financial technology group, FundAdminChain, is currently collaborating with the London Stock Exchange and four global asset managers to develop live tokenized funds for the British market.

Brian McNulty, CEO at FundAdminChain, revealed that asset managers have realized the potential to generate market-beating returns via tokenization of funds:

“Tokenised funds can deliver more transparency, instant settlement, improvements in data and analytics, which will contribute to a more efficient system for investors but we need regulatory support to ensure that the UK remains competitive with other jurisdictions.”

The Investment Association also lobbies the FCA to regard the possibility of allowing traditional mutual funds to own cryptocurrencies and other digital assets. But should the FCA get interested in this proposition, it would still require a full consultation to push it through the regulation process.

The first United States-based on-chain mutual fund was launched in April 2021 by Franklin Templeton to process transactions and record share ownership.