The Deputy Governor of the Bank of England (BoE), Jon Cunliffe, said on Friday (Feb. 28) that digital currencies could potentially dry up lending for banks and affect the economy as a whole, according to a report by Reuters.
Many central banks around the globe are wrestling with the implications of digital currencies and how they will affect a country’s financial health. The BoE has warned about Facebook’s proposed cryptocurrency Libra, as well as other digital coins, and how they must be carefully considered before being approved.
According to Cunliffe, one of the dangers was that stablecoins and cryptocurrency that is linked to social media platforms could cause people to move their money away from banks and into virtual wallets.
“In such a world, and depending how and whether stablecoins were backed with other financial assets, the supply of credit to the real economy through the banking system could become weaker or indeed disappear,” he said. “That would be a change with profound economic consequences.”
Stablecoins need to be carefully studied and standards need to be applied to ensure they will pass tests regarding competition, data protection and efforts to combat money laundering, he said.
Last month, the Bank of England released a statement that a number of central banks were banding together to form a group to study how a bank would go about issuing a central bank digital currency (CBDC).
The Bank of Canada, Bank of England, Bank of Japan, the European Central Bank (ECB), Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS) will all be part of it.
The Central Bank of China is not a part of the group, although it is releasing a digital currency of its own.