Andrew Bailey, the Governor of the Bank of England, said that modern technology had made bank runs more dangerous by increasing the speed at which they take place HugoGye reports
He said: “I did not describe crypto – in its unbacked form – as money. It isn’t. For money to fulfil its function as a means of payment it requires stability of value. This is clearly not true of unbacked crypto. It could be a bet, a highly speculative investment or a collectible, but note that it has no intrinsic value, so buyer be very aware.”
The Bank’s Governor added: “More interesting is the creation of so-called ‘stable coins’ or digital currency, which purport at least to be money as a means of payment. But, as we have seen, they do not have assured value, and in the work we have done at the Bank of England we have concluded that the public should expect assured value in digital money, and confidence in this is needed to underpin financial stability.
For digital currency to be a useful tool which can supplement existing forms of financial management, it will need to be subject to the same strenuous legislation as banks are now., which collapsed when its customers started withdrawing their deposits at pace, Mr Bailey warned that banks may need to hold larger proportions of their assets in a readily available format to reduce the risk of getting into trouble when faced with an unusual volume of withdrawal requests.
He said: “We saw with Silicon Valley Bank that with the technology we have today – both in terms of communication and speed of access to bank account – runs can go further much more quickly. This must beg the question of what are appropriate and desired liquidity buffers that create the time needed to take action to solve the problem.”
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