What might a CBDC mean for monetary policy transmission – would it bring new tools and fuller, faster transmission of policy choices? To what extent would a CBDC ‘disintermediate’ the banking sector, and what impact would this have on the cost and availability of credit, and the resilience of banking business models and funding? And what services and infrastructure should a central bank offer as part of a CBDC and what might best be left to the private sector? The paper from Brookings in July on ‘Design Choices for CBDC’ helpfully explored a number of these issues, as well as key technological points on the need for interoperability and connectivity between and among central and commercial bank systems for CBDC to function effectively. 8 Such standards are even more important in a world where there might be a need for interoperability and friction-free movement between CBDC, private stablecoins and other payment mechanisms. We, along with international counterparts are considering these closely. The Bank of England is exploring these issues and published its Discussion Paper on CBDC earlier this year,9 setting out key considerations and an illustrative model based on a central bank core ledger and private payment interface providers offering overlay services to users. The paper received a wide range of responses. We are currently working through the responses, continuing to engage with stakeholders and look forward to setting out more information next year. We are also working closely with our international counterparts who are facing the same questions.
What is not acceptable is to fall between regimes – for instance to argue that by holding backing assets such as sovereign bonds that are in general much safer than those on a bank’s balance sheet, this is good enough to ensure convertibility into fiat money at par. Low risk is not the same as no risk. This is why the FPC set out in its Financial Stability Report that stablecoins used in systemic payment chains should meet the standards equivalent to those expected of commercial bank money in relation to stability of value, robustness of legal claim and the ability to redeem at par in fiat. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  Some major stablecoin proposals do not appear at present to meet this expectation  Some stablecoin proposals do not include a legal claim for coin-holders. And some stablecoins propose backing in instruments that may have material market, credit and liquidity risk, but do not have the money protections I have outlined. While this might be acceptable for speculative investment purposes, it would not be for payments widely relied upon by households and businesses. Stablecoins need to offer coin-holders a robust claim, with supporting mechanisms and protections to ensure they can be redeemed at any time 1-to-1 into fiat currency. Some may ask if this would rule out a multi-currency stablecoin? Such a proposition is the wrong place to start – it raises questions around the value of the coin, and the underlying money it represents.