Carney Optimism on Fintech Gives Facebook a Possible Path to BOE

Mark Carney

Photographer: Simon Dawson/Bloomberg

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Mark Carney’s embrace of the future of finance is setting the three-century-old Bank of England apart from policy makers around the world.

BOE Governor Mark Carney Speaks At Dinner to the Bankers and Merchants

Mark Carney at Mansion House

Photographer: Luke MacGregor/Bloomberg

The BOE governor is starting consultations on allowing new payment providers to hold reserves at the central bank. Granting access to ventures such as

Facebook Inc.’s Libra would be a significant change — at present, only commercial banks can place their deposits at the BOE overnight.

While Carney remains cautious, saying on Friday that there will be rules, his relatively open-minded approach contrasts with some of his peers. Officials from Washington to Canberra have heaped criticism and skepticism on Libra, a digital currency known as a stablecoin.

“We’ll set the ground rules, and the system will follow the rules or it won’t work. Welcome to the world of finance. There are rules.”
— BOE Governor Mark Carney on BBC Radio 4

A number of Democrats on Capitol Hill swiftly criticized Facebook’s Tuesday announcement and called for additional scrutiny. Representative Maxine Waters, the chairwoman of the House Financial Services Committee, said she would conduct hearings and demanded that Facebook hit the pause button “until Congress and regulators have the opportunity to examine these issues and take action.”

French Finance Minister Bruno Le Maire said it’s “out of the question’” that Libra should become a sovereign currency. Australia’s central-bank governor, Philip Lowe, said there’s a “lot of water under the bridge before Facebook’s proposal becomes something we’re using all the time.” Former European Central Bank Vice President Vitor Constancio called the initiative “unreliable and dangerous” on Twitter.

On Friday, France announced the creation of a
task force
under the auspices of the Group of Seven countries to examine stablecoins, covering anti-money laundering issues and consumer protections.

Carney, a former head of the Financial Stability Board, which makes recommendations for safeguarding international finance, did have reservations on Libra. He said if its global ambitions are realized it would be “systemically important” and must meet the highest standards of prudential regulation and consumer protection.

“The Bank of England approaches Libra with an open mind but not an open door. Unlike social media for which standards and regulations are being debated well after it has been adopted by billions of users, the terms of engagement for innovations such as Libra must be adopted in advance of any launch.”

Still, his remarks highlight how his BOE has strived to keep up with banking technology. Last year, it gave fintech startup

TransferWise Ltd. the same rights as retail banks to process payments as the first non-bank to hold an account in the BOE’s Real Time Gross Settlement system.

As recently as March, it said it was committed to embracing fintech to deliver its mission and is applying new technologies “to enhance its own capabilities.”

On Thursday, Carney said giving more firms access to its reserves could “empower a host of new innovation.” It would mean increased competition for traditional banks but could cut costs for domestic and cross-border payments.

He also said such a move could improve the transmission of monetary policy and help ensure continued financial stability in a fast-changing world. The growth of financial providers outside the traditional banking system — typically known as shadow banks — has become an increasing concern for policy makers tasked with keeping the financial system stable.

The governor cited USC as a potential innovation for financial markets. That’s a consortia which aims to issue digital tokens fully backed by central-bank money, allowing instant settlement of trades.

Stephen Jones, chief executive of UK Finance, the lobby group for the banking industry, said innovation and competition were to be encouraged — but echoed Carney on the supervisory challenges.

“Future regulation needs to be developed to deal with the changing way customers are banking,” he said. “While innovation solves problems it also brings new risks.”

— With assistance by Alastair Marsh, and Giles Turner

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