CBDC’s Provide Greater Monetary Control But Face Risk of Becoming too Dominant: BoE Deputy Gov

The Bank of England's Deputy Governor of Financial Stability discussed Central Bank Digital Currencies (CBDC), stablecoins and cryptocurrencies. Delivering the speech was Sir Jon Cunliffe at the London School of Economics.

According to a report by Crowdfund Insider, the topic discussed was: ‘It’s Time to Talk About Money,' with the Deputy Governor beginning by announcing that a “new wave of technological development” which uses distributed ledger technologies is underway.

The Bank of England will need to consider how to move forward in their management of innovations like stablecoins, said the Deputy Governor.

Too Much of the Traditional: Current Regulations Favour the Old

While questions raised included just how the bank should address fiat-backed cryptos, how to regulate them, and the boundaries of the public-private sector, what remains important is that they're not exclusively UK-based problems. Cunliffe said there is “considerable opportunity to improve the domestic retail payment systems.”

“Innovation and competition can lead to better, cheaper, payments services in the economy. But, the payment systems on which we depend have to be reliable and robust, prudentially and operationally. Regulation, therefore needs to keep pace with the changes in the payments landscape and the proliferation of new actors. The same risks have to be subject to the same regulation.”

The UK regulatory body focuses on the “banks and core payment systems that have traditionally performed the most functions.”

But innovation and competition introduce more actors to this chain of action and “the current regulatory framework does not capture the full ‘end to end’ risks.“

Stablecoins for underbanked but pose considerable risks

Stablecoins, according to him, may help in the reducing friction and expenses within current payment methods, while also providing improved services for the underbanked. Cunliffe said that

“These proposals have, to be fair, shone a light on some of the failures and costs of the current domestic systems … which is particularly true for cross border payments.”

Retail cross-border payment systems are still relatively undependable, slow, and overly expensive. This leaves many potential customers with no way to use them.

Cunliffe highlighted Facebook’s Libra proposal as one such high profile solution which claims such benefits. At the same time, however, because of the enormity of Facebook’s reach, it may become extremely important.

“We are considering these risks internationally within the Financial Stability Board, which will report this year on developing regulatory recommendations with respect to stablecoins.”

Stablecoins also raise broader regulatory questions such as data protection, competition, anti-money laundering, and the funding of potential counter-terrorist groups, the official stated,

“Stablecoin proposals raise broader regulatory issues, e.g. for competition, data protection, anti-money laundering and counter terrorist financing.”

CBDC – “Risk-free form of money”?

CBDCs, meanwhile, could provide a “risk-free form of money,” according to the Cunliffe. Offering greater financial authority from the Bank and further assisting that the payments system remains competitive for individuals and businesses. While this is positive, the risks are also profound.

“For all the opportunities, there are also some significant potential implications (…) such as the implications for the supply of credit to the economy if the role of banks changes, liquidity dynamics both in normal times and in stress, and the risk that a CBDC is too successful and becomes dominant and a single point of failure in itself.”

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