Citi has told the UK government it should consider creating its own digital currency, a newly obtained document has revealed.
The document, a response to the Treasury’s call for information on digital currency, was obtained by CoinDesk via a Freedom of Information request.
In the response, the global bank’s Treasury and Trade Services (TTS) Technology and Innovation Team states:
“The greatest benefits of digital currencies can be realised through the government issuing a digital form of legal tender. This currency would be less expensive, more efficient and provide greater transparency than current physical legal tender or electronic methods.”
Citi believes governments and banks should be at the centre of the “technological shift beyond paper and credit cards” into more digital forms of money.
“To be a key participant may mean that banks and governments need to work together to develop digital currencies that supercede the existing physical and electronic solutions,” Citi adds.
It goes on to say that the act of a government issuing a digital currency would address the AML, KYC and sanctions concerns faced by market-backed digital currencies such as bitcoin. This could create privacy concerns for citizens, but Citi claims these could be offset by the additional value provided by the new currency.
Adam Cleary, a director of the UK Digital Currency Association (UKDCA), said a digital form of legal tender could improve on the current currency arrangements in the UK. However, he said these concepts “simply represent a movement to improved database technology”.
“By contrast, decentralised digital currencies such as bitcoin are an open, distributed, permissionless platform for value transfer which has the potential to drive extensive innovation in financial services independent of established institutions,” they added.
Need for regulation
In the document, which was submitted on 3rd December 2014, Citi calls for the government to introduce regulation covering digital currency companies.
“The absence of clear regulatory guidelines creates uncertainty in this space, and prevents legitimate players from entering the space. Resolving this uncertainty will allow banks to make decisions on how to approach digital currencies.”
Citi asserts that bitcoin’s underlying blockchain technology can be used in ways that will increase transparency and efficiency, benefiting not only consumers and merchants, but governments and regulators too.
Pinpointing the ways in which the government could benefit, Citi said blockchain technology can provide:
- Greater transparency at the transaction level by providing an immutable record of accounting, and ability to embed automated tax collection at the transaction level, enabling governments to decrease overhead and increase efficiency.
- Possibly realise benefits from financial inclusion, increasing the efficiency of government disbursements and addressing fraud and overpayments.
The company believes that, given digital currency’s “inherent ability to easily cross borders and jurisdictional controls”, an international framework should be created to regulate it effectively.
“Extensive work has been done by HM Treasury in collaboration with the UKDCA to establish a strong regulatory framework in the UK and we believe this is a good model for any international regulatory approach,” the UKDCA's Cleary added.
Citi's reply to the Treasury also calls for regulation on a national level that is based on existing laws but promotes a “pro-innovation approach” that doesn’t create hurdles and obligations that could inhibit the growth of digital currency companies.
Citi’s response can be viewed in full below:
Citibank image via Flickr.