London (Parliament Politics Magzine) – The Bank of England is functioning on technology to settle blockchain payments employing central bank money to stop a shift to a private settlement that could damage financial stability, according to a senior official.
Sasha Mills, executive director of financial market infrastructure for the Bank, stated in a speech that the Bank was working to link up the traditional financial sector to digital technologies so that payments persist to be made using central bank money rather than via digital assets such as stablecoins.
What risks do stablecoins pose to financial stability?
Stablecoins are a type of cryptocurrency developed to hold value and make payments quicker and more affordable by avoiding the need for a trusted middleman. They can be utilised to settle transactions, although of course adoption has been relatively slow because of technical hurdles and waning interest in cryptocurrency from businesses and investors. Their reputation has also been lamented after notable collapses that have flared crypto market turmoil.
Nevertheless, Mills expressed there was a chance that payments could shift “away from central bank money to private settlement assets, diluting financial stability”. She was speaking at Digital Assets Week, a London conference.
The Bank this week extended a “digital securities sandbox” alongside the Financial Conduct Authority, which holds financial services firms, to permit companies to test out trading using blockchain technologies. Mills expressed the regulators had permitted non-sterling assets to be used in the trial after feedback from companies.
Can digital assets improve payment efficiency and security?
Mills stated there were risks, but also that digital assets could make payments
“faster, cheaper, and more straightforward.”
She stated:
“While unbacked crypto grabs the headlines, to me consequences in the underlying technologies, including blockchains and programmable ledgers, may be what will have the ongoing positive impact on supporting financial markets and development. We have a low-risk hunger for a significant shift away from wholesale accommodation in central bank money towards private settlement assets (such as from the use of stablecoins for wholesale transactions) because settlement in central bank money is the commentator back to the state.”