The Bank of England’s (BoE) executive markets director has said the balance sheets of central banks will start to shrink as the Covid-19 recovery takes hold – and has also suggested the possible adoption of digital currencies in the future.
Andrew Hauser made the comments in a speech at the International Finance and Banking Society 2021 Oxford Conference on Monday, that was focused on the financial system(s) of tomorrow.
“There’s been particular focus on the sharp increase in the size of central bank balance sheets, most recently as the result of the extraordinary steps required to respond to the economic impact of Covid-19. In due course, those balance sheets will start to shrink again as the recovery takes hold.
“But as that tide recedes, what’s left will not be what we knew 10 to 20 years ago. And that’s because fundamental shifts in economic and financial structures mean that central bank balance sheets are also set to play a much broader role in the future,” Hauser said.
Adopting digital currencies
Hauser also talked about the growing popularity of cryptocurrency circles, stating that central banks may potentially provide new retail payment media, in the form of Central Bank Digital Currencies (CBDCs).
His comments come as a number of countries have taken steps to make it legal for residents to pay for goods using crypto, like Bitcoin. Panama, El Savador and Ukraine are among the places that have adopted it as its popularity has grown.
Central bank of today
Hauser said the BoE has assets of nearly £1trn – equivalent to almost half the annual output of the UK economy.
The ratio is 10 times what it was in 2006, and more than double any previous peak in its 327 year history, including the wars of the 18th and 20th centuries.
