Bank of England  Page 1  Old dogs, new tricks: adapting central bank balance sheets to a world of digital currencies − remarks by Andrew Hauser Given at Federal Reserve Bank of New York and Columbia SIPA Workshop on ‘Monetary Policy Implementation and Digital Innovation’, New York 01 June 2022  Bank of England  Page 2  Speech Introduction The explosion of interest in digital currencies poses deep and challenging policy questions on everything from monetary and financial stability, to privacy, competition, money laundering and social inclusion. Public authorities are evaluating the arguments for and against introducing their own Central Bank Digital Currencies (CBDCs).1 And in the private sector there’s a lively debate about what it might take to make so-called ‘stablecoins’ genuinely stable. Up to now, though, there’s been less discussion about how central bank balance sheets might need to adjust to support the safe and effective provision of fiat-based digital currencies. This workshop is therefore well timed. I will focus my remarks today around five main messages. 1. Retail CBDCs could be a big deal for central bank balance sheets Let’s start with retail CBDC – a central bank liability, in digital form, held directly by individuals, and used to make day to day payments. Many of the raw ingredients of a CBDC are already familiar to central banks: individuals can already hold our liabilities, in the form of physical banknotes; and we already provide digital liabilities, albeit to only a few depositors (predominantly banks).

In addition, the extent to which the external environment will be affected by the higher energy prices and rising interest rates, and its implications on our domestic economy, will be important considerations in the future direction of interest rates. The risk to higher inflation and to the growth prospects will be carefully balanced. Monetary policy will continue to promote sustainable growth in an environment of price stability. Since the dialogue a year ago, the financial landscape continues to be transformed. The domestic financial industry has seen further rationalisation and consolidation in the banking groups in retail banking and investment banking. While the rationalization in the retail banking industry would benefit from the economies of scale, reduce duplication of resources and promote cost efficiency, the new investment bank framework is expected to bring about the emergence of more effective, efficient and resilient capital market intermediaries. It will essentially result in the consolidation of 32 entities into 16 investment banks by the end of this year. Another significant development in 2005 was the establishment of the Malaysian Deposit Insurance Corporation which will further strengthen the domestic financial infrastructure by providing an explicit guarantee of deposits, while simultaneously reinforcing incentives for the improvement of risk management practices by banking institutions. To promote greater financial inclusion in our financial system, development financial institutions have also been strengthened to ensure that they are more focused and complementary in their objectives and business strategies.