In that event, real economy loans could be financed instead by more expensive sources of funding, reducing the efficiency with which commercial banks extend credit. This could lead to greater reliance on non-banks for credit provision as some borrowers find it cheaper to seek credit opportunities outside the banking system. I should emphasise that our work – and the scenario we use to illustrate these effects in the paper – does not at this stage suggest that the impact on lending rates and credit provision is more than modest. So this does not look headline making. But, there is a lot of uncertainty around how this could work out. We don’t know much about the likely demand for digital money, or about how it will be remunerated, all of which is important for determining these effects. The authorities may also wish to limit the speed and scale of any transition to digital money in the interests of greater assurance that there will be no threat to financial stability. Continuing with the provision of credit, greater reliance on longer-term stable funding by banks could reduce the likelihood of a sharp deterioration in bank credit conditions. However, banks will 3/4  BIS central bankers' speeches  also be vulnerable to a deterioration in sentiment in wholesale funding markets. As a result, lending rates could be more volatile overall for those borrowers unable to access other sources of financing.
I hope from this you can get the sense of how important this potential innovation in digital money is, and why we must – both domestically and working with international partners – ensure that we understand and respond to the public interest issues that arise here, so that we can do our job of protecting stability, but also so that innovation can happen in a world where the public interest is well defined and protected. I am going to end – since time is up – by merely listing the other elements of public interest that I could, and probably should have covered, with respect to the innovation of digital currency, but which will have to wait for another day. I could have talked about monetary policy and controlling interest rates in a world of digital money. I could have talked about the public interest in competition in the financial system, about financial inclusion, and about data protection and privacy. I could have talked about the potential for digital money to speed up and reduce the transactions cost of international payments and transfers. And, finally, we cannot ignore the risks that digital money is attractive for money launderers and cyber criminals. All I can say today, I hope this gives the sense of the scale of this area of innovation and how important the subject is. Thank you I am grateful to Jas Ellis, Andrew Hauser, Karen Jude and Sam Woods for their help with preparing these remarks. 4/4  BIS central bankers' speeches