non - bank money might be the next big thing. or they might be a flash in the pan. i don ’ t have a bet here – i am a central banker not a venture capitalist. my job, as a central banker and regulator – in all of this – is to ensure that financial innovations, including new forms of digital money, do not impair the bank of england ’ s ability to maintain monetary and financial stability. this shouldn ’ t be confused with preserving the status quo. financial stability is n ’ t about protecting incumbent banks or other existing firms from competition. instead financial stability seeks to ensure that people and businesses can rely on essential financial services – like the ability to make a payment or the ability to get a loan – in bad times as well as good. a regulatory framework earlier this week, the bank of england published a discussion paper that examines the implications of stablecoins for its financial and monetary stability mandate. in it we present an illustrative scenario to examine the implications of the emergence of stablecoins and other new forms of digital money. the discussion paper models what would happen if a large number of households and businesses moved their deposits from banks and into a stablecoin or central bank digital currency ( cbdc ). contrary to some press headlines, even such a dramatic shift does not inherently constitute a financial stability risk as long as it happens in an orderly manner. in fact findings show that the implications of this in the long term for the ability of households and businesses to get a loan are relatively modest – although there is considerable uncertainty around this result. as such, while other risks may arise during a transitionary phase, the most significant risk arises from the potential for stablecoins in particular to undermine confidence in money and payments, and hence in the wider financial system. as we discussed a few minutes ago, the risk of a loss of confidence in the credibility and stability of private money is not theoretical. loss of confidence in private money can be a major threat to financial stability. but it is equally true that private money can be made acceptable as a widespread means of payment – indeed, as i covered earlier, the vast majority of money held for transactions in the united kingdom is already private. so, with the right regulation, a stablecoin could potentially be made safe for wide - scale use. our existing regulatory framework seeks to ensure that the public is able to trust the reliability and stability of the money it uses every day. banks are subject to extensive rules and

, allowing all participating central banks to obtain foreign currency in the event of a liquidity squeeze. in 2013, the ecb also established a swap agreement with the people ’ s bank of china in recognition of its growing systemic importance as well as the rapidly growing bilateral trade and investment between the euro area and china. 7 factoring in political risks so how do we factor political risks into our decision - making? i would argue that central banks cannot process political risks in the same way as economic risks, for two reasons. the first relates to the degree of uncertainty that surrounds political risks. here it is useful to recall frank knight ’ s classic distinction between risk and uncertainty. 8 risk is present when future events occur with measurable probability. uncertainty arises when the likelihood of future events is indefinite or incalculable. in conditions of uncertainty, it is not possible to manage risk in the sense of quantifying a range of outcomes. decision - making then depends on qualitative judgement. to be sure, this is sometimes the situation central banks find themselves in when surveying the economic outlook. the economy is always characterised by both risk and uncertainty, and there are certain situations – for instance, financial crises – in which models fail and uncertainty prevails. in these cases, central banks still have to take decisions and judgement is the only basis we have. yet, i would venture that economic risks are, on the whole, more quantifiable than political ones, and hence more conducive to active risk management. this is because we have workable models of the economy with broadly established parameters and regularities. and even when the parameters of those models appear to change – like the phillips curve today – they still provide us with a framework to think about those deviations and attempt to explain what we are seeing. for politics, however, we rarely have such tools. we may be able to gauge from opinion polls the likelihood of a political change of course happening. we may even be able to weigh up political parties ’ manifestos and estimate some of the economic consequences of their coming to power. but fundamentally, we know little about how consumers and firms will react to political developments, and especially to the types of seismic political change that are macroeconomically relevant. indeed, for such events to be considered a risk they are usually unprecedented. this means that if we were to engage in managing political risks ex ante, most of the time we would be operating in uncertain circumstances and making judgement calls.