Bank Of England Governor Questions Role Of CBDCs In Financial Stability

According to Odaily, Bank of England Governor Andrew Bailey expressed skepticism about the role of central bank digital currencies (CBDCs) in maintaining financial stability. During a speech at the University of Chicago Booth School of Business in London, Bailey emphasized that while financial markets are evolving, the fundamental principles of currency issuance and liquidity must remain unchanged. He noted the increasing importance of non-bank financial institutions (NBFIs) in global finance, prompting central banks to adjust their risk management frameworks. However, he clarified that this shift does not imply expanding the use of central bank funds beyond traditional banking. Bailey stated, "There is no reason to provide standing facilities for non-bank institutions as they do not create money." He further mentioned that the introduction of a digital pound would not alter the Bank of England's core approach to monetary stability, and any digital currency issued by the central bank must retain the existing financial framework. Bailey confirmed ongoing collaboration with the UK government to explore the feasibility of a digital pound. He stressed that while digital technology offers new possibilities for payments, the decision to introduce a CBDC must be based on clear economic benefits rather than speculative trends. Although he acknowledged that a digital pound could serve as an additional payment option, he cautioned against undermining the fundamental role of commercial banks as intermediaries. Bailey also highlighted that the concept of central bank liquidity must remain bank-centric. CBDCs are not intended to replace private sector financial institutions but to complement the system. His stance indicates that while the Bank of England is open to the development of digital currencies, it will not rush to introduce a CBDC or expand the adoption of stablecoins without comprehensive regulatory safeguards. In his speech, Bailey also discussed Bitcoin and stablecoins. He described Bitcoin as a purely speculative asset while recognizing that stablecoins could perform some monetary functions. However, he warned that stablecoins must meet "high standards" of regulation to operate within the payment ecosystem.