Bank of England Governor Warns Against Impact of CBDC on Fiat

Mark Carney, the outgoing governor of the Bank of England (BoE), warned on Thursday about the risks of a central bank digital currency (CBDC) on the existing monetary system.

Reported by Reuters, the remarks were made at a time when the central bank is studying the feasibility of issuing a digital currency.

“While CBDC poses a number of opportunities, it could raise significant challenges for maintaining monetary and financial stability … and would need to be very carefully designed if it were to be introduced,” Carney wrote in the foreword to a BoE discussion paper.

He will leave the apex position at the central bank on Friday for a new role as UN special envoy on climate action and climate finance. Andrew Bailey, the current head of the Financial Conduct Authority (FCA), will head the central bank after Carney.

Cash is from the past

The report also outlined the falling demand for cash in the UK, as both buyers and businesses are inclining towards the electronic money for transactions.

The central bank is also seeking public opinion for issuing a digital currency; however, the final decision will be in the hands of the government.

Notably, the BoE, along with five other top monetary regulators, are also due to meet next month to study the feasibility of issuing a digital currency.

The BoE earlier said that if it issues a digital currency, it would be denominated in sterling and would not replace banknotes or commercial bank deposits. It also squashed the need of a blockchain for issuing a digital currency.

“If significant deposit balances are moved from commercial banks into CBDC, it could have implications for the balance sheets of commercial banks and … the amount of credit provided by banks to the wider economy,” BoE warned.

Meanwhile, the Swedish central bank is testing a digital version of its currency – e-Krona – but it clarified that its position on issuing CBDC is still unclear.

(Photo: Bank of England)

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