Bank of England Warns of Stability Risks from Private Settlement Assets
The Bank of England has warned of risks to financial stability unless central bank money keeps pace with emerging technologies. Speaking at Digital Assets Week in London last week, Sasha Mills, the BoE’s executive director for financial market infrastructure, said wholesale settlements could increasingly move away from central bank money toward privately issued assets, such as stablecoins, if the central bank fails to evolve its systems.
The Risk of Private Settlement Assets Mills also made it crystal clear that, in the case of private settlement assets such as stablecoins taking over from currently central bank money as the underlying basis for high-value settlement activity, there is a risk. She said such a development could undermine financial stability and erode faith in the state’s role in providing for sound financial infrastructure.
We have a low-risk appetite for a material shift away from wholesale settlement in central bank money to private settlement assets,” Mills said, putting great emphasis on the BoE’s concern for stability in the financial markets.
Balancing Innovation and Risk
But against this threat, the BoE is rapidly renewing its infrastructure. Mills said the bank has introduced the Digital Securities Sandbox, an initiative designed in cooperation with the Financial Conduct Authority. The idea of the sandbox is to have a space to test new technologies, such as programmable ledgers, in a controlled environment.
Yet Mills acknowledged that there were risks, not least because programmable ledger technology is relatively new. She made it clear that the technology would have to be rolled out on a gradual basis and that only companies showing high levels of resilience when trialling the technology could extend its use to systemic financial markets.
Digital Currencies
It also explores the wholesale Central Bank Digital Currency’s potential through distributed ledger technology in a number of trials, in pursuit of understanding how this might be integrated into the evolving payments landscape.
Mills added that the BoE is open to comments from the public over its wCBDC approach until the end of October. It’s not given a particular timeline for implementation, though these ventures are considered very vital in ensuring that the UK remains relevant at the world level regarding finance.
