christina segal - knowles : stablecoins - what ’ s old is new again speech by ms christina segal - knowles, executive director for financial markets infrastructure of the bank of england, at the westminster eforum policy conference, 10 june 2021. * * * i ’ m going to focus today on what is sometimes billed as the next big thing in digital payments – stablecoins – digital tokens issued by the private sector which aim to maintain a stable value at all times, primarily in relation to existing national currencies. and to be clear from the start, today i will touch only on those stablecoins that aim to be used widely as means of payments. stablecoins and other new forms of innovation in payments potentially offer benefits. they could reduce cost and offer new convenience and functionality. they could increase the resilience of payments – by offering alternative new ways to pay. and there could be potential long term financial stability gains from new forms of digital money. but these opportunities can only be realised if new forms of digital money are safe. so today i am not going to focus on what ’ s new about stablecoins. instead, i am going to focus on why – even if the technology they are using is new – the basic elements of a stablecoin are very old. in fact, as old as money itself. this means that as financial regulators, stablecoins are not launching us off into some brave new world. we know what is required to ensure private money1 is safe for wide - scale use. the key here is to ensure that just because something is packaged in shiny technology we don ’ t somehow treat the risks it poses differently. private money : the basics before i turn to stablecoins i want to spend a minute on one of the reasons why the idea of private money feels innovative and flashy. even though most money we use every day is already private money, the vast majority of us don ’ t think about it. luckily, regulation means we don ’ t have to. popular culture often simplifies our ideas around what form our money takes and can reinforce the idea that banks are simply storing our sterling issued by the central bank for us, and that when we pay electronically, what is being moved is central bank - issued money. for example, remember those iconic scenes from ‘ mary poppins and ‘ it ’ s a wonderful life ’ which feature people demanding that banks give them back their money. but in reality, when

we are deliberately implementing it gradually, and not in stressed times. it is not an active tool of monetary policy, but any effects it does have will be captured in the normal way of monetary policy setting, through realised financial conditions. 1 / 6 bis - central bankers'speeches what i have just described relates to the use of our central bank assets to deliver monetary policy goals. the liability side of our balance sheet is key to monetary policy setting too, through the setting of interest rates. but our liabilities also play a key financial stability role, since the level of reserve account balances held by banks at the central bank is a crucial part of their holdings of liquidity. before the financial crisis, the level of liquid assets, including reserves, was much too low, and this contributed to the scale of the financial crisis. let me now draw the next set of conclusions and propositions. both sides of the central bank balance sheet matter for our dual objectives of monetary and financial stability. what is less often said is that post financial crisis, irrespective of qe, a larger central bank balance sheet would have been needed to restore the safe stock of reserves and liquidity buffers. it follows, therefore, that we will not shrink central bank balance sheets to what they were pre - crisis. but at the moment we don't know with any precision where that level of reserves will be, or what the composition of the assets backing those reserves will be. one factor bearing on the equilibrium reserve level question depends on the future mix of banks'liquidity protections, as measured by the liquidity coverage ratio. take the major uk banks as an example. currently, they have an aggregate lcr of 149 % which means a total liquidity buffer of £1. 4 trillion. that buffer comprises £910 billion of reserves and cash and £489 billion of other high quality liquidity assets, mainly government bonds. as qt proceeds, that mix will change as reserves decline. we can't assume that, going forwards, the current answer on the total size of liquidity protection is the correct one. we saw with silicon valley bank that with the technology we have today – both in terms of communication and speed of access to bank account – runs can go further much more quickly. this must beg the question of what are appropriate and desired liquidity buffers that create the time needed to take action to solve the problem. let me go on to the next stage of developments in money,