It is at the heart of what we do. And I can say from experience that, despite the masses of data and our complex mathematical models, it is not an easy task. The future, as the last few years of pandemic and war have shown us, rarely behaves as it should. However, forecasting the direction and pace of technological innovation - and, crucially, the way it will interact with social and economic trends - is an even more hazardous enterprise. Much lauded innovations prove to be dead ends or fail to be adopted. Unheralded ones emerge at speed. And often it is the unforeseen combination of a number of technological advances that generates radical change. Against that background, public authorities, like the Bank of England, that are charged with maintaining financial stability and with the regulation of the financial system need to be forward looking, for two key reasons. The first is that while we cannot be certain how new technologies and social and economic trends will play out, we need to have thought through in advance how the risks might need to be managed and, where the likelihood of major change is high, have the regulatory frameworks and powers in place. Playing regulatory catch up with new technologies once they become established and adopted at scale can be very difficult – as some of the experience in recent years with social platforms and other big techs has demonstrated. And it generates uncertainty for innovators.
But we cannot know for certain the extent and the speed at which payment stablecoins might be adopted and we may well need limits, at least initially, to ensure we avoid disruptive change that could threaten financial stability. Another important question will be whether the requirement to be redeemable in fiat money, on demand and at par and the backing asset model will be sufficient to ensure uniformity of sterling stablecoins with each other and with other forms of sterling money. This will depend to some extent on whether there are frictions in the redemption and interchange process. It has been suggested that ensuring the uniformity (or ‘singleness’ of money) requires that all transactions between different monies settle ultimately in central bank money across the books of the central bank. While it is not clear to me that this should be the case, it is clearly an issue that should be considered carefully in the design of the regulatory regime. Finally, on stablecoins, it is important to emphasise that powers in the Bill and the Bank’s regime will be for stablecoins used for payments. A digital representation of an asset with a generally stable value could be used for other purposes. It could offer a return as an investment product akin to a money market fund. Or it could be part of the credit creation process, with the loans issued in the form of stablecoins.