BoE governor argues a digital pound could protect against bank runs

A new digital version of the pound might help safeguard customers in the event of a banking system collapse, according to Bank of England (BoE) Deputy Governor Jon Cunliffe, adding to the case for a project to produce a kind of currency accessible online. 

According to the official, we are now in the “era of instantaneous bank runs” in which customers may instantly transfer their funds to a different bank if they are concerned about that one’s financial stability, BNN Bloomberg reported on February 28.

Although a central bank digital currency (CBDC) may “intensify” a run on a bank by facilitating faster money transfers, it would also provide users with a “safe place” to store value, as he put it. On Tuesday, February 28, Cunliffe told lawmakers on Parliament’s Treasury Committee that:

“Actually, a CBDC has financial stability benefits because it provides another payment system in terms of resilience, but it also means that if we ever have to deal with failed banks again, there is another asset that people can go into.” 

A digital pound ‘Britcoin’

The Bank of England and the Treasury are considering the introduction of a digital version of the pound called “Britcoin,” which is inspired by cryptocurrencies and the need to create an instrument similar to cash that can be used for online purchases. In contrast to cryptoassets, the digital pound would have the support of the government and central bank. If the government gets its approval in the middle of the decade, it might be implemented by 2030. 

In 2008, Cunliffe argued that the government had to bail out banks like Northern Rock and Royal Bank of Scotland because “60% of people’s money” was tied up in commercial bank deposits, the safety of which is dependent on the stability of the institutions holding the money. 

However, permitting them to shift their money quicker than is now feasible into a CBDC may pose “risks about damage to the banking system.” Cunliffe believes that rather than limiting customers’ access to a secure asset, the best approach to deal with this would be to ensure that a lender was appropriately wound down via the BOE’s resolution structure.

Cunliffe also noted that the BOE does not currently have the technical expertise to be able to build the product in the manner of a cryptocurrency; thus, if the BOE opted to continue, it would need to form partnerships with businesses from the private sector.

It had only been on February 27 that Ben Broadbent, deputy governor for monetary policy at the Bank of England, stated that the institution is paying keen attention to the rollout of a CBDC.