In a foreword to a Bank of England discussion paper, Governor Mark Carney claimed that while central bank digital currency brings in various opportunities, it may also pose considerable difficulties in maintaining monetary and financial stability.
The Governor suggested that the BoE must take steps to carefully evade financial stability risks if it is planning to create a digital equivalent to its existing banknotes.
Apparently, cash usage is rapidly falling in Britain, making businesses and shoppers more reliant on electronic money held with payment companies and banks rather than banknotes issued by the Bank of England.
The BoE reportedly said that it was seeking the views of the public on how it may design a digital currency of its own, which can be operated alongside physical cash. However, a decision on whether to go ahead would require government approval.
In Britain, cryptocurrencies such as bitcoin have failed to take off as a means of payment in the past and the BoE is also being critical of the lack of detail behind a proposal by Facebook for Libra, a so-called stablecoin.
As per sources close to the matter, BoE’s move was appreciated by think-tank Positive Money, which is critical of the lending policies of commercial banks.
The BoE claims that if it introduces its own digital currency, it would be denominated in sterling and may not replace commercial bank deposits or banknotes. And also, it need not to be necessarily based on the blockchain technology that runs on cryptocurrencies. Just like cash, it would offer an alternative to using banks for payments between businesses and individuals and might aid in making cross-border payments easier.
The BoE also added saying that if substantial deposit balances are moved from commercial banks into central bank digital currency, it could have implications for the balance sheets of commercial banks and also to the amount of credit provided by banks to the wider economy. Nevertheless, central bank digital currency can be designed in a manner that would help mitigate all these risk factors.