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Stablecoins and decentralised finance will challenge banks’ business models and monetary authorities must act more quickly to develop official digital assets, veteran policymaker Benoît Coeuré said in a speech on Friday.
The comments from Coeuré, a senior official at the Bank for International Settlements and former member of the European Central Bank’s executive board, highlight the increasing angst among financial authorities over the boom in cryptocurrencies and other digital finance innovations.
Coeuré said both decentralised financial firms and stablecoins — a store of value in the digital asset market — pose a threat to depository institutions and intermediaries such as banks. Central banks and financial watchdogs now face urgent questions on how to respond, he told the Eurofi conference.
“[Central banks] have a job to do — delivering price stability and financial stability — and they must retain their ability to do it,” Coeuré said in a speech called Central bank digital currency: the future starts today. “[They] have to act while the current system is still in place — and to act now.”
Coeuré, who is leading research on central bank digital currencies for the BIS, urged policymakers to hasten their response to the threat of cryptocurrencies and accelerate their work on digital assets backed by national policymakers, otherwise they face losing their key role in the financial system.
“The time has passed for central banks to get going,” Coeuré said. “Central bank digital currencies will take years to be rolled out, while stablecoins and cryptoassets are already here. This makes it even more urgent to start.”
He also said that central banks and regulators need to consider what role banks will play after the advent of central bank digital currencies and the role of intermediaries in a digital financial system, as well as the implications of the design of these new assets.
Coeuré said that central banks view traditional financial firms as part of the new, digital currency payments infrastructure. “But make no mistake: global stablecoins, DeFi platforms and big tech firms will challenge banks’ models regardless,” he said.
Major central banks have been slow to respond to the challenge of bitcoin and other private digital assets, in contrast with policymakers in developing economies where projects around central bank-backed digital currencies are at an advanced stage.
In China, the digital version of the renminbi is already in a trial stage and will be rolled out at the upcoming Winter Olympics in Beijing as part of the government’s experiment with centralised cryptocurrencies.
In contrast, the ECB launched the investigation phase of a digital euro project in July this year and the US central bank has not decided whether to move forward with a digital version of the world’s premier reserve asset.
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