After the 2016 referendum, open-ended property funds added 20% to normal market transaction levels, even though many eventually suspended redemptions and despite them holding only 5% of commercial real estate.14 And they have made the financing of emerging markets less stable too.15  This is a complex and challenging global problem. The general form of the solution to this is known: funds’ redemption terms should be consistent with the liquidity of their assets. This was in fact recommended by the G20’s Financial Stability Board, with our support, in 2017.16 In principle, redemption terms could be made ‘consistent’ with asset liquidity in a number of ways. Investors who want their money out in a day could be offered a price based on a quick-sale valuation of the fund’s assets. At the other end of the spectrum, the redemption term could be limited to the time it takes to sell a fund’s assets and realise quoted market prices, even under stress. Either way, this consistency would ensure that no investor faced an incentive to get out before any other. As yet, this general solution hasn’t been translated by the relevant regulators into specific global rules. So in July, the Bank of England and the FCA announced that we will assess how funds’ redemption terms might be better aligned with the liquidity of their assets. That will include assessing the effectiveness of liquidity tools that are already used and the cost and benefits of aligning the redemption terms with the typical time it takes to sell a fund’s assets.
And, in some forms, they pose a danger to the environment and to other societal objectives. Stablecoins, meanwhile, are vulnerable to runs, as we have recently seen with algorithmic stablecoins. In this context, it is vital that any remaining regulatory gaps in the crypto-asset ecosystem are closed. I count on the work of this Parliament to ensure that an ambitious regulatory framework emerges from the current negotiations on the EU Regulation on Markets in Crypto-Assets (MiCA)[11] and on the current legislative proposals on anti-money laundering and countering the financing of terrorism, especially in relation to information accompanying transfers of funds and certain crypto-assets (FCTR). [12] To avoid this confusion about what digital money is and what it is not, we need the central bank to provide one of its own, responding to the demand for digitalisation and providing an anchor of stability in the world of digital finance. Protecting the stability of the financial system For the digital euro to play this role, we need to carefully evaluate its potential impact on monetary policy, financial stability and the provision of services by financial intermediaries. [13] A digital euro would of course be issued by the central bank. And unlike potentially dominant private actors in tomorrow’s digital payments market – such as big techs – the central bank would pay close attention to financial stability considerations and to preserving a diverse and vibrant ecosystem. This does not imply that the status quo must be maintained.