LONDON (Reuters) – The Bank of England will need to proceed with caution to ensure that the financial stability of the hazard if it creates a digital equivalent to the existing ones, Governor Mark Carney said on Thursday.
FILE PHOTO: Bank of England Governor, Mark Carney, unveils the design for the new £20 note at the Turner Contemporary gallery in Margate, England, October 10, 2019 at the latest. Leon Neal/Pool via REUTERS
Cash use is falling in Britain, giving shoppers and businesses are more dependent on the electronic money held by the banks and the payment companies, in the place of bank-notes issued by the BoE.
The BoE said it was looking for the public’s views on how it might be able to design a digital currency of its own performance, as well as the physical money, even though to make a decision on whether or not to proceed, it would need the approval of the central government.
“While the CBDC (central bank of digital currency), provides a number of opportunities, but they could do some significant challenges to maintaining monetary and financial stability … and it has to be very carefully designed if it were to be implemented,” Carney said in the introduction of the BoE discussion paper.
Cryptocurrencies, such as bitcoin, have failed to take off as a means of payment in the Uk, and the BoE has been criticized for the lack of details behind Facebook’s proposal for a so-called ‘stablecoin’, called a Scale.
The BoE’s move was welcomed by the think-tank Positive Money, that is interest on the part of commercial banks ‘ lending policies.
“The government and the central bank will need to continue to work together in order to speed up the efforts to create a digital currency before they can be defeated by the likes of Facebook, Positive Money, the head of policy, David Clarke, said:.
The BoE said that if it is implemented its own digital currency, the pound sterling, and it would not be in the place of bank notes and commercial bank deposits, and does not need to be based on the blockchain technology behind cryptocurrencies.
But, like cash, it would be a good alternative to using banks for payments between individuals and companies, and cross-border payments more easily.
The BoE’s deputy governors, Jon Cunliffe, has warned that a central bank of digital currency, could undermine the commercial banks — a concern reflected in the BoE paper.
“As a key deposit, the balances will be moved out of the commercial banks in the CBDC, that would have consequences for the balance sheets of banks and … and the amount of the credit granted by the banks to the economy,” the BoE said.
“And yet, CDBC, can be designed in a way that could help you to mitigate these risks,” it added.
One option would be for the BoE to address the underlying infrastructure of the digital currency are, in addition to the existing sterling payment systems, but for private companies, which are responsible for the interaction with the customers.
The BoE’s consultation will run until the 12th of June.
Reporting by David Milliken; Editing by Kate Holton and Catherine Evans