“We have made a lot of progress on financial inclusion in the last number of years […] and a CBDC could have huge benefits for the economy and society,” said Sir Jon Cunliffe, Deputy Governor for Financial Stability at Bank of England, at a Feb. 28 Treasury Committee on the crypto asset industry.
Cunliffe said a “CBDC has financial stability benefits because it provides another payment system in terms of resilience,” citing his willingness to explore the introduction of a CBDC or some other form of stablecoin within the Bank of England.
However, he and others cautioned against a stablecoin untethered to anything other than the central bank itself.
“I think your comments about having a public asset and one that’s accountable politically in the largest sense of the word, and democratically accountable is really, really important. Rather than having some particular excessively libertarian tech gazillionaire doing a CBDC, I think it’s more important that central banks do it”
–Sarah Breeden, Executive Director, Financial Stability Strategy and Risk at Bank of England.
A CBDC to bank the unbanked?
Cunliffe added to the committee that he was upset at the slow innovation seen from the traditional financial sector, particularly when assisting the unbanked.
He said that theoretically, the crypto asset industry does not offer more than what the traditional banking sector already offers, i.e., mobile banking apps that are KYC and deposit insured, or offering more additional services that lower the barrier of entry for small depositors to mobile banking, but added that many of these banks still lag.
“Some banks said, ‘there’s nothing we can’t do already.’ And then the dialogue is, why aren’t you doing it?”
“Looking at the UK, we’ve made a lot of progress on financial inclusion over the last years. I was in the treasury when basic bank accounts were thought up,” a program that over saw 8 million people go from bankless to banked, Cunliffe said.
“There will be fewer people using cash because it doesn’t work in a digitized society,” Cunliffe speculated, accelerating a turn towards what he and others see as the trend toward a cashless society, noteworthy of tap payments and other internet commerce innovations of the last several years, which Cunliffe says are only expected to increase in the future.
“As cash becomes less usable,” Cunliffe predicts that “CBDCs and the uniformity of money [..] could have huge benefits on the economy and society.”
He added that “the way the current system is constructed, the multiple ledgers, the technology that is used, the lack of uniformity, the restrictions on speed, all suggests that it is unlikely that that would match using some of these new technologies. Will they be developed? I don’t know.”
“The question is having created the money, if it leaves the banking system and goes kind of into a CBDC or a stable coin because this could happen with a stable coin as well, how do banks then attract that money back again to ensure their balance sheets are in balance?The other point to make is if there is not a CBDC, it doesn’t mean these technologies go away.”
Cunliffe and others at the committee also warned about the fallout from crypto asset speculation but ultimately said banking and finance have always been inherently about risk management.
“But it also means that if we ever have to deal with failed banks again, there is another asset that people can go into. One of the reasons we had to bail out the banks in the sort of dreadful passage back in 2008 wasn’t because of the supply of credit to the economy, was simply because had they failed, you know, 60% of people’s money would have been locked up because their money was commercial bank deposits. So there are I think there are financial stability benefits in this area as well.”
The full parliamentary treasury committee on the crypto asset industry can be accessed on the UK Parliament’s website.
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