Bank of England official: Digital currency may have an impact on bank lending

Bitcoin may not be widely adopted, but a central bank-issued digital currency could have a huge impact on the global financial system, Ben Broadbent, the Bank of England’s second-in-command for monetary policy, said in a speech today.

In his speech at the London School of Economics, Broadbent specifically discussed the relationship between digital currencies and central banks, a topic that has been discussed many times by the Bank of England.

The deputy governor believes that the likelihood of a digital currency such as Bitcoin being widely used as a payment mechanism or unit of account is low, saying:

“The point is that the important innovation of Bitcoin is not that it replaces the unit of account (it seems unlikely that you can pay for things with Bitcoin instead of pounds, dollars or euros), but that we will use its settlement technology, the so-called “distributed ledger”.

In his speech, Broadbent discussed the advantages of future central bank digital currencies. He also discussed the application of distributed ledgers in the financial system, pointing out that "decentralized virtual clearinghouses and asset registries" may be a better way to explore this technology.

Impact on banks

Broadbent also advises:

“Right now, retail deposits are made up mostly of illiquid loans, assets that cannot be sold on the open market, and banks will not be able to meet the demand for liquidity resources if everyone tries to close our accounts at the same time,” he said. “By contrast, central banks only hold liquid assets on their balance sheets. Central banks cannot run out of cash and therefore cannot suffer a ‘run’.”

Such a shift, however, is likely to have an impact on commercial banks - that is, their ability to lend money without relying on potentially unstable asset markets.

"On the other hand, taking deposits out of banks can have an impact on their lending capacity," he said. "Banks will be more dependent on the large-scale market, and the stability of these funding sources is not very strong, which will lead to a reduction in (commercial banks) lending to the real economy."

Research continues

As Broadbent pointed out, the Bank of England is exploring blockchain technology across the board, and digital currencies are on the central bank’s research priorities for the coming year.

Earlier this year, the Bank of England said it had been looking at possible applications of blockchain technology in settlements.

In the past, the Bank of England has published several papers on blockchain technology, suggesting that digital currencies could reshape the payments sector and even undermine the central bank's ability to implement monetary policy if they are widely adopted.

Original article: http://www.coindesk.com/bank-of-england-digital-currencies-bank-lending/
By Stan Higgins
Compilation: Overnight porridge
Source (translation): Babbitt Information (http://www.8btc.com/bank-of-england)