This is the assumption used in the illustrative scenario in Section 3 of the Bank’s 2021 discussion paper New forms of digital money | Bank of England, and reflects the share of UK deposits that is non interest bearing. 2  Bank of England  Page 4  Sources: Individual central banks’ published data, IMF, Bank calculations. Those are big numbers. But they aren’t unprecedented in the history of central banking. In the UK, even the top end of the range in Chart 1 would still leave the stock of publicly-provided means of payment at around the levels seen in the mid-20th century (Chart 2). This underscores the point that, while the technology for any future CBDC may be new, the use of the central bank balance sheet to provide state-backed transactional money would not be: indeed, it is one of the oldest functions of central banks. Bank of England  Page 5  Sources: Bank of England, IMF. 2. Stablecoins that are truly stable may have much the same impact As public authorities reflect on the case for CBDCs, private sector providers have been developing so-called ‘stablecoins’, which claim to be pegged to the value of fiat currencies. I say ‘claim’, because recent weeks have suggested such promises may be less than fully credible. The value of TerraUSD – once one of the larger ‘stablecoins’ by market capitalisation – fell to zero in just a few days.
Nowadays, the SNB and the commercial banks together provide the economy with money. Through credit creation, the banks are in a position to create book money, only a small part of which they are required to cover with SNB sight deposits. In everyday life, this book money – for instance deposits in salary accounts – is generally accepted in the same way that cash is accepted. A plain money system would mean that banks had to cover 100% of their book money with SNB sight deposits. The people behind the initiative believe that this would simplify monetary policy because a plain money system would allow the SNB to manage the money supply with utmost precision. Moreover, plain money is thought to increase the stability of the financial system because deposits are secured by SNB sight deposits. In addition, profits from money creation would accrue fully to the SNB and no longer, in part, to the banks. Although the idea of plain money may be interesting in certain respects, I am sceptical as to whether acceptance of the initiative would result in better money. My reticence is born not only of considerable doubts as to the anticipated benefits of plain money, but far more because the introduction of plain money would constitute an enormous experiment for which we lack any experience or comparative figures from the past. Never in monetary history has a country introduced plain money based on central bank money. Assumptions which appear plausible could therefore prove to be incorrect.