The deputy governor for the financial stability of the Bank of England (BoE), has warned that the adoption of a cryptocurrency would have profound economic consequences in the UK.
March 2, 2020 | AtoZ Markets –Jon Cuncliffe, the deputy governor for the financial stability of the BoE has said that the emergence of a crypto economy may eventually weaken or even eliminate bank credit issuance.
How will cryptocurrencies impact the UK economy?
Cunliffe predicted that the incorporation of stablecoins on social media platforms like Facebook could result in people putting much of their money that is currently held with banks into stablecoin wallets. While delivering his speech in the London School of Economics on February 28, Cunliffe stated:
“In such a world and depending on 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. That would be a change with profound economic consequences.”
The British envoy to the European Union defines the Bank of England’s role as ensuring that the U.K.’s money “works safely and reliably.” He said that virtual currencies pose “critical questions” for the U.K. government, regulators, and the Bank of England.
Cincliffe also urged regulators and central banks to prepare for the unique hiccups that come with the emerging crypto ecosystem. They should do that before it becomes systematically important.
Stablecoins’ risks exceed current payment system
The Bank of England official also acknowledged that the current financial system is:
“The equivalent of 18th-century bank clerks with quill pens altering their banks’ ledgers to debit one account and credit another.”
Stablecoins allege to offer multiple benefits that include:
“Very large reductions in the costs of payments, especially cross the border and greater financial inclusion; through easier and cheaper access to payment services for the ‘unbanked.”
Moreover, he said that regulators should prepare for risks associated with stablecoins before they achieve a systemic footprint. Cuncliffe warned that as a result of Facebook’s size, its proposed Libra stablecoin could reach adoption levels that may see it rapidly become systemically important.
He also noted that the Financial Stability Board (FSB) would issue a report examining “regulatory recommendations for stablecoins” this year.
Earlier in February, FSB chair Randal K. Quarles confirmed that the organization is conducting a thorough review of its framework. The analysis is to assess vulnerabilities that exist in the financial system. Thus, it guarantees that the system is at the cutting edge of financial stability vulnerability assessment.
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