Consumers are already living “in an era of instantaneous bank runs”: BoE Dep. Governor
BoE Deputy Governor says CBDCs can protect consumers, who are living in an era of instant bank runs.
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Bank of England (BoE) Deputy Governor Jon Cunliffe said we are already living in an age of instantaneous bank runs as consumers can rapidly move their funds between banks if they are worried about the solvency of a bank where they keep their deposits. He added a central bank digital currency (CBDC) provides an alternative asset that consumers can use in case “we ever have to deal with failed banks again.”
CBDCs Allow Consumers to Safely Store Value, Says BoE Deputy Governor
Jon Cunliffe, Deputy Governor of BoE, said a digital pound could protect consumers in case of a banking system failure, arguing they are already living “in an era of instantaneous bank runs.”
Cunliffe said consumers today can move money instantly to another financial institution if they have concerns about the solvency of their bank. Even though the digital version of a fiat currency could intensify bank runs, it would also provide them with a secure place to store value, the deputy governor added.
“Actually a CBDC has financial stability benefits because it provides another payment system in terms of resilience, but it also means that if we ever have to deal with failed banks again, there is another asset that people can go into.”
– BoE Deputy Governor Jon Cunliffe told lawmakers on Parliament’s Treasury Committe.
Cunliffe acknowledged that a CBDC would offer consumers a way to move their funds even faster and could put the banking system at a certain risk. However, he added the best way to address this matter would be to ensure a lender was appropriately wound down through the central bank’s resolution framework rather than completely cutting consumers’ access to the asset.
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Britcoin Expected to Launch Before 2030
Cunliffe’s remarks to the Treasury Committee come just a few weeks after UK Chancellor revealed the roadmap for the digital pound, also referred to as “Britcoin.” Among other things, the roadmap showed that the UK would not allow consumers to hoard their CBDCs to protect financial stability.
Britcoin, which is expected to launch by 2030, would provide Britons with a digital currency that can be used for internet transactions. But unlike cryptocurrencies, the digital pound would be backed by a centralized entity, in this case, BoE.
Other global central banks have also joined the CBDC race in the past years, including China, India, Russia, and Japan. On the other hand, the US Federal Reserve is behind on this matter, partly because there’s no consensus that a CBDC is needed or useful.
Do you agree with Cunliffe’s views that a CBDC provides a safe place to store value despite the risks it could increase the pressure on the banking system? Let us know in the comments below.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
