- Bank of England, Deputy general, Jon Cunliffe stated that the rise of cryptocurrencies and stablecoins could result in the banking system running dry of cash flow.
- Cunliffe also spoke about how associating cryptocurrencies to technology giants could lead to mass money movements from traditional banking systems to the virtual wallets provided by these firms.
Jon Cunliffe, the Deputy General of the Bank of England, stated
that the rise of cryptocurrencies and stablecoins could result in the banking system running dry of cash flow. Central banks from all over different parts of the world are all exploring stablecoin currencies in their economies to try and find whether such digital financial infrastructure backed by the central banking system can be viable.
Bank of England just said that cryptocurrencies could cause lending through the banking system to "become weaker or indeed disappear"
DeFi: "Yeah, that's the point?"
— Blockfolio (@blockfolio) February 28, 2020
The Bank of England has previously made warnings about the famous and controversial Libra stablecoin offering from Facebook and the risks associated with using such new forms of currencies.
The bank believes that careful consideration should be made, and detailed studies must be taken up to understand the full implications of adopting a fully digital form of currency like the ones that stablecoins and cryptocurrencies provide.
BoE’s Cunliffe Warns Risk to Banks due to Cryptocurrency
Cunliffe also spoke about how associating cryptocurrencies to technology giants could lead to mass money movements from traditional banking systems to the virtual wallets provided by these firms. People are more familiar and root more trust in these well-recognized technology companies.
Any such offering can easily sway the younger generation into moving some, if not all, of their money into digital currency. This could be massive to the traditional banking system and result in profound financial and economic changes due to the new influx of the financial sector with technology.
The deputy general says,
Cunliffe’s concern here is the very aim of a newly emerging Decentralised Finance (DeFi) sector where financial services and currencies hope to be taken into the blockchain and be offered with all the advantages that come with a digital platform.
As more banks try and understand the potential of digital currencies, it is also necessary for the higher-ups to make sure that these stablecoins comply with standard monetary regulations and are pass testing in data protection, anti-money laundering, and competition with other digital offerings.