Bank of England warning on digital currencies
By Punchline reporter | 8th June 2021
New digital currencies pose a risk to financial stability and the wider economy, according to a discussion paper published by the Bank of England.
The Governor of the Bank of England, Andrew Bailey, says these new forms of money raise a 'host of issues' that central banks, governments, and society as a whole, need to address.
The Bank is considering ways to manage the transition period as these new currencies emerge, with perhaps a limit on the amount people are allowed to transfer into digital currency at one time.
In the illustrative example in the paper, the Bank considers the impact of a fifth of all UK retail deposits transferring to new forms of digital money.
Such a move would have a huge impact on commercial banks, and they would need to adjust to cope with this.
The Bank of England is developing its own Central Bank-backed digital currency (CBDC). There are also 'stablecoins' - digital currency pegged to traditional currencies.
Diem, formerly Libra, run by Facebook is an example of this. Facebook is planning a digital currency linked to the pound and others linked to the euro and the dollar.
In addition, there are the cryptocurrencies like Bitcoin, which do not have a central bank link or backing and are valued according to what the market decides.
Most UK households and businesses already use central bank money in the form of cash, and private money in the form of bank deposits.
Governor of the Bank of England, Andrew Bailey, said: "We live in an increasingly digitalised world where the way we make payments and use money is changing rapidly.
"The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks, governments, and society as a whole, need to carefully consider and address.
"It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money."
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