Digital currency bank reserves a possible big shift if offered: BOE

Bloomberg

A big portion of consumer deposits at retail banks could shift to digital currencies if governments start offering them, the Bank of England (BOE) indicated in a discussion paper about the issue.
The UK central bank modeled the impact of introducing digital forms of money on the retail banking sector and in one scenario considered what would happen if a fifth of all deposits went digital. The BOE said any large-scale reallocation of cash may impact money markets.
The findings indicate the scope and complexity of issues emerging as central banks weigh modernising the way cash and payments systems work. The BOE along with many of its peers is considering whether to introduce a digital currency that would smooth the way online payments work.
“We live in an increasingly digitalized world where the way we make payments and use money is changing rapidly,” BOE Governor Andrew Bailey said in a statement on Monday. “The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks,
governments, and society as
a whole, need to carefully
consider and address.”
The paper said a digital currency could boost economic activity, by contributing to faster, cheaper, and more efficient payments. It also throws up risks of transitioning from current forms of money to the digital kind. It suggested a transition period would be necessary, during which the BOE would limit the pace of migration.
“Any large-scale reallocation of cash around the financial system has the potential to impact how money markets function,” the BOE paper said. “Hence, there is a risk of some disruption to money markets in the short-term, as new forms of digital money emerge. But in the long-run, these
markets should adapt.”