Philip Hammond on CBDCs, stablecoins and crypto's place in global finance | The Crypto Mile

Watch: Philip Hammond on CBDCs, stablecoins and crypto's place in global finance | The 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".

On this week's episode of Yahoo Finance UK's The Crypto Mile, Hammond spoke about CBDCs, stablecoins and crypto's place in global finance.

He said: "The crypto market is here to stay, and it is not really for regulators or others to say this asset or that asset has no value, an asset has value if someone is prepared to pay for it.

"But, if there is a marketplace to be made then it needs to be properly regulated, and I am quite comfortable for an institutional market for cryptocurrency assets."

Copper and digital asset custody

During his tenure as the UK's finance minister, Hammond was often characterised 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 senior advisor at Copper, a London-based crypto custody firm, becoming chair of the company in 2023.

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

Hammond said he thinks in the future the digital assets class will broaden to encompass the tokenised forms of many traditional financial assets.

Tokenisation of all financial assets

The tokenisation of financial assets is the process of converting the 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 that Copper's underlying focus is to "develop the core technology, so that as the digital asset market expands from simply crypto assets to the tokenised forms of broader financial assets".

Proponents expect the tokenisation of financial assets to gain popularity as the adoption of blockchain technology continues to grow.

Read more: Philip Hammond: Big finance's move into crypto is unstoppable

It could lead to increased liquidity through fractional ownership, improved efficiency with instant 24/7 trading, reduced costs by eliminating intermediaries, enhanced security using blockchains, and global access for investors without geographical restrictions.

"Everyone recognises that blockchain has the potential to have big advantages for markets," Hammond told Yahoo Finance UK.

"If we are right and this is the beginning of a digitisation process across the whole of financial services, the blockchain infrastructure that underlies it will become part of the systemically important rails of the financial services 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 if their rapid growth were to result in intuitional finance becoming significantly exposed to the high volatility, and potential for misuse, of crypto assets.

In February, head of the BIS Agustín Carstens told Bloomberg: “A few years ago, crypto assets and cryptocurrencies were, in a way, put us an alternative to fiat money.

"I think that battle has been won; the technology doesn’t make for trusted money. The most important aspect is for these activities not to have a systemic impact.

"If we have more events like FTX, that at some point 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 yet at any danger of becoming a systemic risk to the system," he said.

"But, this is something that the central banks globally are watching and will be very mindful of if the value of crypto assets on balance sheets gets to the level were they could become a systemic risk.

"Then that will call for an acceleration of the process of regulation and management of these markets."

Global CBDC developments and stablecoins

Central banks around the world are researching and developing Central Bank Digital Currencies (CBDCs).

CBDCs aim to harness the benefits of digital currencies, such as improved efficiency and financial inclusion, while maintaining the stability and oversight provided by central bank authority.

Hammond said that there is a need for CBDCs "if we are going to expand beyond the current range of crypto assets and into digitised markets for traditional assets through tokenisation, then we need a new means of settlement into fiat".

"That could be done with stablecoins, but stablecoins because they are issued by non-sovereigns introduce another tier 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 becoming available as the means to allow digital settlements in these emerging digital markets.

"Eventually, market actors would choose CBDCs over stablecoins, because the governments that are issuing CDBCs are trusted by users."

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