The Bank of England has today admitted that commercial banks would be hit hard by plans for a digital pound backed by central bank reserves.
At a meeting of a House of Lord’s committee meeting on CBDCs bigwigs from the central bank said that commercial banks would need to alter business models in a future digital payments landscape.
“Banks would have to adapt… They would lose a revenue stream from payments,” said Jon Cunliffe, the deputy governor for financial stability at the Bank of England.
Under current assumptions commercial banks are set to lose out on 20 per cent of retail and commercial bank deposits to Britcoin if it is rolled out. Cunliffe said that banks were therefore likely to lose 20 basis points on credit spreads.
Explaining the benefits of a CBDC, the Bank of England’s governor Andrew Bailey said that longstanding competition issues would be solved through an electronic payments system making it an attractive alternative to commercial banking. CBDCs will facilitate instant settlement for payments and would allow merchants to avoid the heavy transaction fees levied by traditional payments providers.
“I think issuing a central bank digital currency is a sledge hammer to crack that one,” Bailey said, referring to merchant transaction fees. “on the other hand the nut has refused to be cracked for a long time.”
Bailey also took the opportunity to dismiss stablecoins, often touted as an alternative to CBDCs, as a reliable digital payments method.
“I put the word stable in inverted commas at this point,” said Bailey, undermining the claim that stablecoins are a secure store of value.
“The crypto world is unbacked in terms of assets, its computer code,” said Bailey, who noted that 95 per cent of the crypto market consists of unbacked assets whilst stablecoins which account for the remainder lack regulatory clarity.
The Bank of England and HM Treasury are jointly consulting on whether to roll out a UK CBDC.