Jon Cunliffe, deputy governor for financial stability at the Bank of England, warned that the advent of a crypto economy could weigh on bank credit issuance.
In his speech to London School of Economics on 28 February, the official expected that the introduction of stablecoins on social media platforms could lead to put their money into stablecoin wallets.
Cunliffe went up to add:
“Innovation and competition can lead to better, cheaper, payments services in the economy. But, the payment systems on which we depend have to be reliable and robust, prudentially and operationally.”
“Therefore, regulation needs to keep pace with the changes in the payments landscape and the proliferation of new actors. The same risks have to be subject to the same regulation,” he said.
The BoE official encouraged regulators and central banks to gear up for the major challenges related to the evolving cryptocurrency environment.
However, Cunliffe emphasized that regulators must be ready for the risks associated with stablecoins before achieving a “systemic footprint”.
He warned that, due to Facebook’s size, Libra project may reach the adoption levels that could see it “very quickly becoming systematically important.”
CBDCs may bring benefits
The official also said the central bank digital currencies (CBDCs) may bring significant benefits but the risks may be profound:
“But for all the opportunities, there are also some significant potential implications. Some of these are very similar to those I have discussed earlier with regard to private stable coins such as the implications for the supply of credit to the economy if the role of banks changes, liquidity dynamics both in normal times and in stress, and the risk that a CBDC is too successful and becomes dominant and a single point of failure in itself.”
Earlier, Cryptolydian reported Sarah John, BoE chief cashier, said central banks have to research digital currencies so they can strike a balance with private issuers.