And, more recently, UK property investment funds also exhibited run-like redemptions following the EU referendum result, which depressed asset prices. 35  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  35  The model can be used to assess the impact of different approaches to constraining redemption. Chart 16: Impact of action to reduce speed with which investor redemption requests are fulfilled  Chart 16 shows the impact on yields of varying the redemption window, for three different rates of investor flow. Extending the redemption window from one day to one month would, according to the model, have reduced amplitude of the resulting asset price cycle by a factor of around five. Conclusion  In one of his most famous metaphors, Shackle described the economy as a kaleidoscope, a collision of colours subject to on-going, rapid and radical change. Many of our existing techniques for modelling and measuring the economy invoke a rather different metaphor,  Source: Braun-Munzinger et al (2016). Notes: When the parameter which controls the flow of money out of funds, s, is large, redemption management can significantly reduce the magnitude of the maximum change in yield following a large loss rate shock. The redemption management policy splits investor redemptions over a variable number of days with diminishing returns. The loss rate shock is 0.35%, which is a comparable order of magnitude as the annual loss rate change between 2007 and 2008.  with the economy a rather colourless, inanimate rocking horse.

But, to take one example proposed by some, if a systemic stablecoin were required to be fully backed by deposits at the central bank, the implications for central bank balance sheets could be very similar to CBDC (Chart 4). This would also be the case if a ‘narrow bank’ chose to issue its own tokenised deposits and put all the proceeds into holdings at the central bank. Indeed, arguably any stablecoin with a credible link to fiat currency relies ultimately on settlement in central bank money. Of course, that does not mean that it is central bank money: even fully-backed, regulated stablecoins would remain the liabilities of private sector companies, and hence pose a range of risks not associated with CBDCs. 4  See Record of the Financial Policy Committee - 13 December 2019 (bankofengland.co.uk) and https://www.bankofengland.co.uk/financial-policy-summary-and-record/2022/march-2022 5 As proposed by the UK Treasury in O-S_Stablecoins_consultation_response.pdf (publishing.service.gov.uk). Bank of England  Page 7  3. Digital currencies may alter the transmission mechanism for monetary policy A key unknown in assessing the impact of digital currencies lies in judging the extent to which they may affect the flow, and pricing, of money and credit in the economy – which in turn has implications for the transmission mechanism for monetary policy. When a bank creates a new loan, it must retain or attract sufficient deposits to fund it.6 Digital currencies do not fund credit creation, but they do increase the competition for, and hence the cost of, deposits, with knock-on implications for the price and availability of credit.