The executive director for markets at the Bank of England is of the opinion that digital currencies could impact central banks’ balance sheets. Andrew Hauser delivered his speech at the Federal Reserve Bank of New York on the 1st of June. According to the executive, “systemic” central bank digital currencies (CBDCs) and stablecoins are capable of affecting monetary policy delivery and control of the Bank of England and other central banks. Additionally, he said these digital assets can alter the financial institutions’ assets and liabilities.
Bank of England Says Digital Currencies Could Influence Balance Sheet
Speaking, the executive director for markets related how the eventual design of CBDCs and stablecoins can affect the bank. In his words, the “eventual design of any systemic digital currencies” will influence the central bankers’ balance sheet. Further, he suggested that the Bank of England begin preparing for the possible implications of digital currencies. Hauser stated that the financial institution needs to start developing defenses in its system against the implications. He added that digital currencies do not pose any “redline” risks to central banks’ balance sheets.
In addition, Hauser mentioned how digital currencies, in general, could affect the relationship between central and commercial banks. Typically, central banks regulate the money supply of a nation by modifying interest rates, regulating commercial banks, and being a lender of last resort. On the other hand, dial currencies can upset these functions. They can trigger competition for credit and reduce deposits in commercial banks. Also, CBDCs and stablecoins can hinder central banks from acting as the lender of last resort.
In the wake of the UST crash, the executive also referred to the regulation of such a system to prevent further fiasco. He noted the Bank of England’s recommendation that any stablecoins that reached systemic size would meet the required standard of a commercial bank. This includes full legal claims, transparency, and strict supervision by the central bank. If this happens, stablecoins will mandatorily fit within the monetary system controlled by central banks. Therefore, they will operate as a de facto form of state-backed liability.
Crypto Experts Speak of Crypto Unsustainability
The UST crumble, coupled with the inflation, has raised concerns among experts in the crypto community. During the recent World’s Economic Forum (WEF) in Davos, many crypto enthusiasts voiced their stance on crypto assets. Ripple CEO Brad Garlinghouse spoke about the unsustainability of cryptocurrencies. He said only “scores” of the existing over 19,000 cryptos. Meanwhile, WEB 3 Foundation CEO Bertrand Perez said crypto is in its buzzing stage, similar to the early stage of the internet. He referred to the scams that “were not bringing any value” in the early days of the internet.