Jon Cuncliffe, Deputy Governor for Financial Stability of the British Central Bank, Bank of England (BoE), warned that the emergence of the global crypto economy could weaken or eliminate the issue of bank credit.
Jon Cuncliffe: Watch out for cryptocurrencies!
In a speech delivered at the London School of Economics on 28th February Cuncliffe said that the integration of stablecoin coins on social media platforms could lead people to store their savings with them. As one can easily guess, he referred to Libra, the digital currency of Facebook, which is supposed to see the light of day later this year. He warned:
“In such a world, and depending on how and whether the stablecoins will be secured by other financial assets, the supply of credit to the real economy through the banking system may weaken or even disappear. This would be a change with profound economic consequences. ”
He believes that the Bank of England’s role is to ensure that UK money “works in a safe and reliable way”. He said that virtual currencies pose “very important questions” for the government, regulators and the Bank of England.
In doing so, Cincliffe called on regulators and central banks to prepare themselves for the unique challenges of the emerging crypto ecosystem before this issue becomes “systemically important.
The risk of stablecoins “goes beyond” the existing payment system
He added that the creators of stablecoins claim that they offer users a number of benefits, including ‘a very large reduction in the cost of payments, especially cross-border payments’ and ‘greater financial integration through easier and cheaper access to non-banking payment services’.
However, they claim that regulators need to be prepared for the risks associated with stablecoins. It warns that given the scale of Facebook’s operation, its proposed stablecoin, Libra, may reach a level of adoption that can ‘very quickly become systemically important’.
Notes that the Financial Stability Board (FSB) will issue a report this year analysing ‘regulatory recommendations for stablecoins’.