Last month, the United Kingdom parliament debated an arcane topic that hasn’t been raised in the legislative chamber in 170 years: money creation.
The last time the subject was discussed in the House of Commons was when the Bank Charter Act of 1844 was passed. That historic act put an end to British commercial banks’ ability to issue banknotes, transferring those powers exclusively to the Bank of England.
The member of parliament who revived the topic in the House was Steve Baker, who was recently elected to a seat on the Treasury Select Committee. The committee is responsible for scrutinising the Treasury, the Bank of England, the tax authority and the financial regulator.
Bitcoin believers who heard the debate would have been pleased to discover that Baker is also a bitcoin user. During the debate, the MP called on the government to move away from creating new regulations specifically for alternative currencies, including bitcoin. Instead, he said, the state should do everything possible to regulate bitcoin under ordinary commercial law.
Speaking to CoinDesk exclusively at the House of Commons, Baker explained his view, conceding that it was a strong position for a politician to adopt.
He said:
“Bitcoin should be regulated by the ordinary commercial business laws with no additional regulation. It is a big ask. It is saying to people, you can buy bitcoin, but don’t come running to us if the exchange goes down or you lost your wallet [private key].”
Technology and finance background
Baker’s CV puts him in good stead to grapple with bitcoin’s place in the regulatory world. After starting his career as an aerospace engineer in the Royal Air Force, he left in 2000 to complete a master’s degree in computation at Oxford University.
After a series of software engineering and consulting jobs, Baker became chief architect of global financing and asset servicing platforms at Lehman Brothers in 2006, a role that gave him a ringside view of the coming financial crisis.
Baker is a member of the Conservative Party, which is in power as part of a coalition with the Liberal Democrats. He was elected MP for Wycombe in 2010 and was elected to the Treasury Select Committee in May. The committee is one of 19 Select Committees created to independently scrutinise the policy, administration and expenditure of government departments.
The less intervention the better
For Baker, the less government intervention in the digital currency world, the better. Bureaucratic attempts to invent a new regulatory framework for bitcoin would only stifle entrepreneurialism and innovation, he said, adding:
“The government should get out of the way of innovation – as long as it is lawful.”
In Baker’s view, the UK government has already been largely supportive of bitcoin. He pointed to the Bank of England’s recent research into cryptocurrencies and the Treasury’s public call for information about digital currencies as evidence of this.
“It is a remarkable fact that the UK Treasury is interested in cryptocurrencies at all,” he said.
When asked if UK banks should adopt a more open posture towards dealing with bitcoin businesses, however, Baker declined to take a stronger stand.
“The actual risk [for banks] is regulatory, not commercial … I would not presume to tell the banks how to cope with regulatory risk. I would just implore the government to create conditions that minimise that risk,” he said.
‘Red pill, blue pill’ moment
Perhaps Baker’s stance on bitcoin regulation should come as no surprise. He is a proponent of the Austrian school of economics, a theory developed in 1871 by University of Vienna professor Carl Menger that emphasises the individual’s role in determining a product’s relative value.
Baker describes the moment 14 years ago when he read the work of Friedrich Hayek and Ludwig von Mises, the two leading Austrian school thinkers of the 20th century, as the “red pill, blue pill moment”.
In line with the Austrian school’s elevation of individualism, Baker believes consumers should be allowed to use digital currencies without being encumbered by a new set of laws.
He said:
“I’m a great believer in personal responsibility. I would say cryptocurrencies right now are accessible to a tiny portion of the population who are both technically competent and sufficiently willing to take risks and so forth.”
What about the inevitable argument that bitcoin needs to be regulated because it is used for sale of illicit goods on dark markets like Silk Road? Baker once again invoked the individualist argument:
“Money can always be used for different purposes … Money is a tool like a screwdriver or a hammer, just as cash can be used for prostitution or drugs.”
Buying bitcoin is still cumbersome
Baker cited his experience buying bitcoin from the Kraken exchange as an example of how bitcoin’s appeal is limited to a narrow set of the public. He said he had to open a currency trading account with his bank, buy euros to place in the account and then wire the funds to the exchange to purchase bitcoin.
“My mum and dad are not going to do that,” he said.
Pulling out his mobile phone to show CoinDesk his Blockchain wallet app, Baker observed that his initial €500 investment in bitcoin had halved in value to about €250.
“I lost some money on it and I feel a bit stupid,” he said, adding that he made sure to say in Parliament that he used some of his bitcoins to buy a camera accessory, not to shop on the dark web.
Bad money, good payment system
How, though, does Baker’s argument against special regulations for bitcoin square with his own experience, as a financially and technologically savvy individual, losing money on the volatile cryptocurrency?
Baker says the two experiences are consistent with his view of individual responsibility because he doesn’t think bitcoin is yet suitable for the man on the street.
Bitcoin has not become a stable store of value so far, Baker said, making it a “bad money” that still suffers from speculative bubbles and extreme volatility. But bitcoin is an “excellent” payment system, he added, although he believed that the digital currency is due for a drop into the “trough of despondency” before it rises in popularity.
Nevertheless, Baker is optimistic that bitcoin, or another cryptocurrency, will take hold of payments technologies in the near future. He describes a world, 10 years from now, where people use cryptocurrencies “without a second thought”, transacting digitally to buy coffee or groceries.
Digital currencies were also lauded by a shadow cabinet minister from the opposition Labour Party, Chi Onwurah, two weeks ago. In an interview with CoinDesk, she said bitcoin could shift power away from big banks and return it to consumers.
The UK government has been largely positive towards bitcoin. The most visible move was Chancellor of the Exchequer George Osborne hailing digital currencies as a way to turn Britain into a “global centre of financial innovation” this summer.
Portrait image via Steve Baker/Flickr