A central bank digital currency (CBDC) would not pose too much of a challenge for the operations of the Bank of England, Andrew Hauser, executive director of markets at the BoE, said on Wednesday.
The BoE is due to consult this year on whether it should create its own digital currency – a sort of competitor to cryptocurrencies such as bitcoin – after Finance Minister Rishi Sunak encouraged it to consider a possible “Britcoin”.
Hauser said a central bank digital currency would be the first new kind of central bank accountability in centuries, but not inconsistent with the BoE’s goals.
“The dog may be old, but he can still perform new tricks,” Hauser said ahead of a discussion hosted by the Federal Reserve Bank of New York.
“By themselves, balance sheet considerations obviously present no ‘red line’ argument against adopting the CBDC,” he added. “Using the central bank’s balance sheet to provide state-backed transactional money is one of our oldest functions.”
The BoE said any CBDC would not replace cash and would be equivalent in value to sterling banknotes.
The BoE sees the sterling reserves that commercial banks already hold with it as a type of digital currency, and a fully-fledged CBDC as a broader form of public access to this system, potentially reducing banks’ role in daily payments.
Western central bank interest in CBDCs has been spurred by the possibility of a major tech company creating its own payment method. This could bypass the traditional banking system, creating concerns about privacy and financial stability.
If a company went this route, it should expect to be regulated to the same standards as a bank, Hauser said.
Existing “tablecoins” — a type of cryptocurrency that is pegged to a common currency or commodity — did not meet those standards, Hauser said.
“Holders of these coins need to at least accept the possibility of getting badly cashed out,” Hauser said, citing the recent collapse of TerraUSD and a temporary dip in the value of the more widely used Tether.