Andy Haldane, the Chief Economist at the Bank of England, talked yesterday about central bank digital currencies (CBDCs) and stablecoins, making some slightly contrarian points. In his opinion, concerns about digital currencies disintermediating banks for deposits overlook the benefits of narrow banking. He also believes the ability to charge negative interest rates is an enormous benefit of CBDCs. And he stated the Bank of England would make the ‘pivotal’ CBDC decision within a year or so.
Most discussions about CBDCs touch on worries that a desire for consumers to have a safe haven for money will make CBDCs more attractive compared to bank deposits. Hence, to fulfill the lending role of banks, they will have to resort to more expensive funding sources. And the shift involved could be destabilizing.
Haldane’s point is that CBDCs and stablecoins effectively split the deposit-taking and credit functions resulting in narrow banking on the deposit side. In this scenario, “safe, payments-based activities (are) segregated from banks’ riskier credit-provision activities.” And in his view, beyond the transition, that could be a good thing because he believes the mix has resulted in financial instability. In the future, when it comes to lending, risky assets will be backed by risky liabilities.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
