The institution wants regulators and other central banks to be prepared for the “risks” associated with the emerging cryptocurrency ecosystem.
The launch of more cryptocurrencies, the adoption of these types of digital assets, and a cryptocurrency economy could eliminate bank credit issuance. That is what Jon Cuncliffe, deputy governor for Financial Stability of the United Kingdom’s central bank, the Bank of England (BoE) affirmed.
In this sense, Cuncliffe opines that the integration of stablecoins on social media platforms may lead people to decide to save the money they have in banks on digital currencies as stablecoins. They could store these assets in wallets and not in banks.
“In such a world and depending on how and whether stablecoins were backed with other financial assets, the supply of credit to the real economy through the banking system could become weaker or indeed disappear. That would be a change with profound economic consequences”, Jon Cuncliffe commented.
Cuncliffe, the British envoy to the European Union, added that digital currencies pose “very important questions” for the government of the United Kingdom, regulators of that country, and the Bank of England. He highlighted that the role of the Bank of England is ensuring that the U.K.’s money “works safely and reliably”.
A Recent Similar Case
This opinion of the BoE’s representative comes after the Central Bank of Ukraine expressed its concerns regarding the issue of Central Bank Digital Currencies even though this bank is working in its digital currency, e-Hryvnia, which would be supported by the national currency.
The Central Bank of Ukraine has joined work teams to investigate cryptocurrencies, but now it is not very sure of issuing its digital asset or not. The institution fears that issuing a cryptocurrency could be “the source of financial instability that can greatly affect Ukrainian private banks”.
Although the e-Hryvnia project could bring benefits such as reducing the amount of paper money and increasing public confidence in these types of assets, the Central Bank of Ukraine decided to stop the project to analyze it.
Benefits of Stablecoins
The representative of the Central Bank of England recognized that stablecoins could offer different benefits, including “very large reductions in the costs of payments, especially cross border”, and “greater financial inclusion through easier and cheaper access to payment services for the ‘unbanked” people.
Besides, transactions made using blockchain technology would be faster than the operations conducted traditional processes. Operations with blockchain will not be modified later.
The BoE official said that the current financial system comprising “the equivalent of 18th-century bank clerks with quill pens altering their banks’ ledgers to debit one account and credit another”.
The British envoy informed that the Financial Stability Board (FSB) will issue a report examining “regulatory recommendations concerning stablecoins” this year.
However, the Bank of England, as an institution, hopes to be sure before issuing any digital asset.
Cincliffe urged regulators and central banks to be prepared for the challenges and “risks” associated with the emerging cryptocurrency ecosystem before it becomes “systemically important”.
Some weeks ago, Randal K. Quarles, President of FSB, announced that the organization is working on evaluating vulnerabilities in the financial system to prevent future inconveniences.
By María Rodríguez