Coindesk recently published Citi Bank’s response to the UK Treasury’s call for information on digital currency, in which Citi Bank told the UK government it should consider creating its own digital currency. Citi’s Treasury and Trade Services Technology and Innovation Team stated, “[t]o 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 also called for the government to introduce regulation covering market-based digital currency companies, stating: “[t]he 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.” Given digital currency’s “inherent ability to easily cross borders and jurisdictional controls,” Citi thinks that an international framework should be created to regulate it effectively. However, it warned against “overtly strict regulation,” which may create “excessive compliance costs” that negate the usefulness of digital currency and cause it to “go underground.”
A government issuing a digital currency, Citi claims, would address the AML, KYC and sanctions concerns faced by market-backed digital currencies such as bitcoin. Although this may create privacy concerns for citizens, Citi believes that these concerns could be outweighed by the additional value provided by the new currency.
According to Citi, the benefits of digital currency are significant because they (1) “mak[e] transactions more efficient in some segments of the financial system where barriers to entry or regulation produce artificially wide spreads” and (2) “use the blockchain technology to make and keep track of financial and nonfinancial asset transactions in a permanent accounting record.” Citi also asserts that bitcoin’s underlying blockchain technology can be used in ways that will increase transparency and efficiency, benefiting consumers, merchants and government regulators alike.
Citi has been active in promoting the use of digital currency technology to transform the existing financial system. Greg Baxter, Citi’s Head of Digital Strategy, recently stated that although he did not believe bitcoin was mature enough for mass adoption, the “real game is using digital [currency] to transform the core of our industry” to innovate on top of existing platforms.