Andrew Bailey has indicated that he would prefer a “regulated” form of central bank digital currency, involving a platform in which the Bank of England would oversee commercial banks and users of sterling in electronic wallets.
When he spoke to the Lords’ Economic Affairs Committee on Tuesday, the BoE governor apparently rejected the two extremes of offering an anonymous digital sign similar to banknotes or allowing retail accounts at the central bank.
The BoE and the Treasury have dedicated to launch next year a consultation on the idea of a central bank digital currency with a view to launching one in the latter part of the decade.
Central bank digital currencies have become a hot topic with the steady decline in the use of cash and the support by technology giants of so-called “stablecoins” – digital tokens linked to currencies such as the dollar, euro, yen or sterling.
All of these concepts differ from cryptocurrencies, such as Bitcoin, which do not have a stable value and are more similar to an asset with a value that depends on the demand to hold it.
But central bankers see stablecoins as an unregulated threat to existing currencies and have accelerated their internal discussions of alternatives in response.
Bailey said he was “skeptical” that the best type of new payment system “would be some world of asset-backed stable currencies that have monetary features that can be regulated”. But he admitted it raised the question of what shape a digital currency from the central bank can make it cheap and easy to use as part of the normal payment system.
The governor said that while he was not attracted to the idea that the BoE would become the banker for millions of people and become a competitor to main street banks, it wanted a core regulatory role in the system.
He said the bank roll should be to “provide the means of settlement and central bank money to a platform in which banks and perhaps wallet holders will be the participants and regulated,” adding: “The bank will need to have regulatory powers over the firms. which was on the platform, because it is the direct interface. ”
The type of digital sterling that the BoE is likely to settle on will be one based on a centralized payment system rather than one that cuts out the central bank and allows tokens to be exchanged between two people, such as banknotes.
Bailey acknowledged there would be issues surrounding privacy and the management of personal data in the establishment of any digital central bank currency.
For users, a central bank digital currency will be little different from transactions using debit or credit cards or other payment systems, such as PayPal, that it will be guaranteed directly by the state, as cash is now, thus reducing the risk of using it. and possible reduction of transaction costs.
Bailey reiterated that Bitcoin and other cryptocurrencies are growing rapidly and need greater regulation. “We do not see this today as an immediate financial stability issue, but we do see it as the potential to become a threat to financial stability, and therefore we need to act on that front,” he said.