CAI0004

Written evidence submitted by Professor Daniel Broby

Dear Sirs on the Treasury Commons Select Committee,

I welcome the opportunity to answer a few of your questions from the basis of the balance of evidence in academia.  I am Chair of Financial Technology at Ulster University. I am a leading international scholar specialising in digital assets and have conducted research into financial applications of blockchain and distributed ledgers. I fully support the work of the UK Parliament aimed at positioning the UK as a leading innovator in digital assets whilst at the same time maintain a harmonized regulatory framework.

I have conducted research into the lessons learnt from the testing of the digital Renminbi in China (e-CNY), a Central Bank Digital Currency (CBDC). This is different from crypto assets in as much as it is legal tender and state sponsored. Early results suggest that different forms of digital payment systems can co-exist.  This, along with other evidence from finance scholars lead me to believe that crypto assets will replace traditional currencies. 

The e-CNY is a technology neural digital offering built on a hybrid platform to perform the function of a retail CBDC.  Pilot testing of CBDC’s in most western countries have focused on blockchain solutions for wholesale markets.  The UK has yet to conduct any form of physical testing. I consider the Bank of England to be overly cautious.  The testing of the retail CBDC in China and the wholesale CBDC offerings in Asia, Middle East, Europe and Latin America show that retail offerings are technically feasible and wholesale CBDSs are able to tolerate a large transaction per second in. In Switzerland, Project Helvetica demonstrated wholesale CBDCs were faster and cheaper than traditional digital methods.

I do not think the Bank of England or the FSA have the technical depth to oversee and regulate such assets. Chine, for example, set up a separate body to do this, the Digital Currency Research Lab.  I also do not think our law is sufficiently adapted to handle legal ambiguity.  China for example enacted a National Cryptography Law. The regulators concern about monetary stability is understandable but is standing in the way of research and development.

The opportunity that arises from being a leader in CBDC adoption and crypto-asset innovation is that the financial sector benefits from the secondary services that these will naturally result in.  Distributed ledger technology can certainly be applied to financial services.  We are moving from double entry private ledgers to triple entry distributed ledgers. 

In my view, digital asset innovation provides many benefits and is of utmost importance for the development of the UK’s financial sector, its future competitiveness, and its ability to offer new and innovative services to consumers. The government has largely prepared for crypto assets by engaging private sector consultancies, the City, and social scientists.  It needs to widen the preparedness to a multi-disciplinary effort including those with technical knowledge.

The concern about tax systems being able to adapt is largely a technical one.  The tax authorities should be instructed to prepare accordingly.  They are not, by nature, a pro active part of the economy. The Money-Laundering concerns are largely driven by the media’s perception of crypto assets.  These are quite different from CBDCs.  The need to innovate should not be stifled by the popular press.  The reality is that any digital asset leaves an online footprint.  Again, the solutions are technical and require research and development.

In hoping that my comments have proved useful,

I remain,

Yours faithfully,

Daniel

August 2022