Bank of England governor Andrew Bailey expressed doubts about the role of Central Bank Digital Currency (CBDC) on financial stability. Bailey stressed the need for central banks to maintain control of the monetary system through banking.
Bailey, who spoke at the University of Chicago Booth School of Business on February 11, in London, emphasized that, while the financial markets evolve and change over time the fundamental principles of money issuance must not be compromised.
Bailey pointed out that nonbank financial organizations (NBFIs), which are increasingly important in the global economy, have prompted central bankers to change their risk-management frameworks. He made it clear, however, that this change does not justify extending central bank money to traditional banks.
“There is no rationale for standing facilities for non-banks as they do not create money.”
Bailey signaled that the BoE would continue to maintain its core approach towards monetary stability despite the digital introduction.
Commercial banks are undermining
Bailey said that several countries are exploring CBDCs in order to modernize their financial and payment infrastructure. He also stressed the need for any digital currencies issued by Bank of England to preserve the financial framework.
Bailey confirms that, in conjunction with the UK Government, the Bank of England continues to study the feasibility of the digital pound. He stressed, however, that although digital technologies provide new payment options, the decision on whether to implement a CBDC should be made based not only on speculative tendencies, but also clear economic benefits.
Bailey, said:
“We must have it if it’s proven that we need it.”
Although he recognized that the digital pound would be a useful payment method, he cautioned against undermining banks’ fundamental role as brokers.
Bailey also highlighted that central bank liquid must be a concept centered on banks. Bailey emphasized that the CBDC was not intended to replace financial institutions in the private sector, but would rather be a complement.
Bailey:
“The standing provision of liquidity to support the so-called singleness of money goes only to the banks.”
The Bank of England launched a new currency in January. “Digital Pound Lab”This year in an exploratory stage to identify the possible design and usage cases of a UK CBDC.
Bailey’s position suggests that, while the Bank of England is open to advances in digital currencies, it won’t rush to implement a CBDC and expand stablecoin use without comprehensive regulatory protections.
Stablecoins must meet ‘high bar’
Bailey discussed Bitcoin (BTC), and stablecoins in his address. Bailey characterized Bitcoin solely as a speculative investment, but acknowledged that stablecoins can serve certain monetary functions.
He warned, however, that stablecoins need to meet certain standards. “high bar” If they want to be a part of the payment ecosystem, then there must be some kind of regulatory framework.
Bailey’s comments coincide with the growing discussion on stablecoin regulation. This is particularly true as both the Bank of England (BoE) and the UK Government continue to examine their roles in digital finance. While stablecoins have a similar structure to mutual funds and are therefore more opaque, Bailey reiterated this.
Bailey, said:
“I think we will have to set a high bar there because the expectations are that people using things for payments are appropriately set like money.”
Ses comments are in line with recent changes to global regulatory policies relating to cryptoassets. Bailey admitted that Donald Trump’s election as pro-crypto US president could change global regulatory dynamics, but said that it is unclear which specific reforms the Trump administration will implement.
Bailey:
“The Biden administration, particularly the SEC, had got into a situation where it couldn’t get a regulatory framework and was using action through the courts. That was becoming more challenging, frankly. So there is a gap there in terms of having a consistent regulatory framework, but we don’t know what that’s going to be.”
Stablecoins, UK, Banking and CBDCs The Author 
Assad Jafri
AJ has been a journalist for more than a decade, and he’s been a fanatic since the 2011 Arab Spring in Yemen. Specialized in financial journalism and now focused on crypto-reporting.
Email @Saajthebard on LinkedIn Editor
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