Philip Hammond on CBDCs, stablecoins and crypto in global finance

by Arthur · April 11, 2023

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See: Philip Hammond on CBDCs, stablecoins and crypto’s place in global finance | Crypto Mile

Former UK Chancellor Philip Hammond said the crypto market is here to stay, adding that the sector is being “colonised by institutions as banks globally invest in developing their own digital capabilities”.

In this week’s episode of Yahoo Finance UK’s The Crypto Mile, Hammond talked about CBDCs, stablecoins and crypto’s place in global finance.

He said: “The crypto market is here to stay and it’s not really for regulators or anyone else to say this asset or that asset has no value, an asset has value if someone is willing to pay for it.

“But if there is a marketplace to be created, it needs to be properly regulated, and I’m quite comfortable with an institutional market for cryptocurrency assets.”

Custody of copper and digital assets

During his tenure as UK Chancellor of the Exchequer, Hammond was often characterized as a conservative who focused on fiscal discipline rather than innovation.

He has now ventured into cryptocurrencies, web3 innovations and digital asset infrastructure.

In 2021, he became a senior advisor at Copper, a London-based crypto custody firm, and became chairman of the company in 2023.

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Despite market fluctuations, Copper has become a leading provider of institutional digital assets and trading solutions.

Hammond said he believes that in the future the digital asset class will expand to include the tokenized forms of many traditional financial assets.

Tokenization of all financial assets

Tokenization of financial assets is the process of converting ownership and rights associated with a traditional financial asset, such as stocks, bonds, real estate or even art, into digital tokens that can be traded and managed on blockchain platforms.

Hammond said Copper’s underlying focus is to “develop the core technology, so that the market for digital assets expands from just crypto-assets to tokenized forms of broader financial assets”.

Advocates expect the tokenization of financial assets to increase in popularity as the use of blockchain technology continues to grow.

Read more: Philip Hammond: Big finance’s move to crypto is unstoppable

It can lead to increased liquidity through shared ownership, improved efficiency with instant 24/7 trading, reduced costs by eliminating middlemen, increased security through the use of blockchains and global access for investors without geographical limitations.

“Everybody recognizes that blockchain has the potential to have huge benefits for the markets,” Hammond told Yahoo Finance UK.

“If we are right and this is the beginning of a digitization process across the whole of financial services, the underlying blockchain infrastructure will become part of the systemically important rails of the financial industry.”

Crypto assets a systemic risk to global finance?

The Bank of International Settlements (BIS) previously said that crypto-assets could pose a systemic risk to global finance should their rapid growth leave intuitive finance significantly exposed to the high volatility, and potential for abuse, of crypto-assets.

In February, head of BIS Agustín Carstens told Bloomberg: “A few years ago, cryptoassets and cryptocurrencies were in a sense an alternative to fiat money.

“I think that battle is won, the technology does not monetize trust. The most important thing is that these activities do not have a systemic impact.

“If we have more events like FTX, at some point it could become a systemic impact.”

However, Hammond suggested that crypto, in its current form, poses no systemic risk to global finance.

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“Cryptocurrencies are not a risk because simply by scale they are not in danger of becoming a systemic risk to the system yet,” he said.

“But this is something that central banks globally are looking at and will be very aware of if the value of cryptoassets on their balance sheets gets to the level where they could become a systemic risk.

“Then it will require an acceleration of the process of regulation and management of these markets.”

Global CBDC Development and Stablecoins

Central banks around the world are researching and developing Central Bank Digital Currency (CBDC).

CBDCs aim to harness the benefits of digital currencies, such as improved efficiency and financial inclusion, while maintaining the stability and oversight of central banking authorities.

Hammond said that CBDCs are needed “if we are to expand beyond the current spectrum of cryptoassets and into digitized markets for traditional assets through tokenization, then we need a new means of settlement for fiat”.

“It can be done with stablecoins, but stablecoins because they are issued by the non-sovereigns introduce a different level of risk,” he said.

“As soon as you bring a non-sovereign into the equation, you create more risk, so we would like to see CBDCs become available as a means of allowing digital settlements in these emerging digital markets.

“Ultimately, market participants will choose CBDCs over stablecoins, because the authorities issuing CDBCs are trusted by users.”