Amidst the growing digitization, Eurozone citizens have stocked up on banknotes as a safety buffer. Meanwhile, over half of German households are skeptical about a digital euro as “not convinced that it would deliver sufficient added value.”
Bank of England Governor Andrew Bailey said the central bank does not oppose competition but wants financial innovation to serve the wider public interest and ensure that it doesn’t create financial instability.
“There will inevitably be elements of tough love in such a process, and some disappointed ambitions, but I am confident that out of it will come a robust form of innovation,” said Bailey while speaking to the annual conference of TheCityUK, a financial trade body, on Tuesday.
According to him, regulations should encourage financial innovation, but finance shouldn’t get a “free pass.” New forms of digital money should be “trusted as a store of value and as an accepted means of payment,” he added.
Bailey, who also oversees banking regulation, further said that he does not agree with the views of crypto enthusiasts “who take the libertarian view that something backed by nothing has more confidence in value than something backed by the state.”
But he also said that central bank digital currencies (CBDC) risk attracting “money launderers and cybercriminals.”
Skeptical of Digital Euro
On Tuesday, European Central Bank board member Fabio Panetta also said that Eurozone citizens have stocked up on banknotes as a safety buffer since the beginning of the coronavirus pandemic.
Demand for euro banknotes rose by 190 billion euros between March 2020 and May 2021, a 4% increase compared to the trend in the previous five years.
During the same conference, a Bundesbank survey showed 56% of German households interviewed were skeptical about introducing a digital euro in the future.
“Many of them were not convinced that it would deliver sufficient added value compared with the existing range of payment options,” said Bundesbank board member Johannes Beermann in his speech.
Last week, a BoE discussion paper was published that covered the impact of a fifth of all retail banking deposits going digital. This digitization may impact money markets, it said. As such, Bailey said, the central bank may limit the speed and scale of any transition to digital money in order to maintain financial stability.
During his speech on financial innovation, he also commented on stablecoins, saying they have to ensure a key requirement. As per this, the backing assets for stablecoins will have to “cover the outstanding coin issuance at all times” unless it is operating as a bank, he said.
Stablecoins are attracting increasing scrutiny from regulators around the world. Just last month, Federal Reserve Chairman Jerome Powell noted that they could pose risks to the financial system.
Then days after Powell’s statement, Fed Governor Lael Brainard warned that the widening use of stablecoins could fragment the financial system. If consumers lose confidence in them after their wider adoption, it could potentially create a “run on the bank” panic, raising costs for U.S. households and businesses, she said.
AnTy has been involved in the crypto space full-time for over two years now. Before her blockchain beginnings, she worked with the NGO, Doctor Without Borders as a fundraiser and since then exploring, reading, and creating for different industry segments.