Researchers at the Bank of England published a paper that examined the possible implications of the introduction of private and public stablecoins, as well as their role in the development of the financial system.
Bank of England Governor Andrew Bailey said the possible use of stablecoins as a means of payment and the active development of government digital currencies raise many questions. According to him, they should be carefully considered by central banks and governments in the near future. Therefore, the Bank of England conducted a study and presented a document that outlined the possible implications of the introduction of private and public stablecoins, as well as their role in the “evolution” of money.
The Bank of England believes that in the future, stable cryptocurrencies pegged to fiat currencies will comply with the regulations that apply to traditional finance and banking products. Given that regulation of the cryptocurrency industry is tightening, issuers of stablecoins will be required to comply with capital and liquidity requirements in order to be able to compensate investors if necessary.
In the future, stablecoins may be in much greater demand than deposits in commercial banks. Due to the development of stablecoins, commercial banks may face cash outflows, so they will have to adapt their policies to maintain liquidity. In turn, this will lead to an increase in interest rates on bank loans.
With regard to digital currencies of central banks, the Bank of England believes that they should ensure maximum public access to the financial market. Central bank specialists are studying not only how government stablecoins can be used to make settlements and payments, but also whether they can become a full-fledged store of value and generate interest. For digital currencies of central banks to be used primarily for payments, the regulator is considering the possibility of multi-tiered remuneration, including the use of zero or negative interest rates.
In addition, the use of state digital currencies with the possibility of generating income will allow the central bank to directly influence the interest rates offered to enterprises, which will strengthen its mechanisms of influence on the country’s monetary policy. It can also indirectly affect the cost of loans and deposit rates offered by commercial banks.
Bank of England Deputy Governor Jon Cunliffe recently said central bank digital currencies could be critical to future financial stability. Cunliffe said last year that the central bank has no intention of protecting commercial banks from digital currency risks.
