In a speech to the Brookings Institution, Bailey questioned the extent to which central banks should be involved in the underlying payments infrastructure of digital currencies.
Central banks currently play a crucial role in ensuring confidence in the monetary system, through issuing currencies and maintaining price stability, he said.
Policymakers are particularly uneasy about the introduction of privately operated digital currencies with global ambitions.
In part because the value of so-called stablecoins such as Libra would be tied to other assets, central banks fear that they could replace traditional currencies and upend financial systems in the process.
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Critics such as French economy minister Bruno Le Maire have issued stark warnings about stablecoins, arguing that they could result in a loss of sovereignty for nation states.
“If stablecoins are to be widely used as a means of payment, they must have equivalent standards to those that are in place today for other forms of payment types and the forms of money transferred through them,” Bailey said on Thursday.
Referencing a report by the Bank of England’s financial policy committee, Bailey said that stablecoins should meet the standards expected of commercial bank money: stability of value, robustness of legal claim, and the ability to convert their holdings at par value to fiat, or government-issued, currency.
“Some major stablecoin proposals do not appear at present to meet this expectation,” Bailey warned, without directly referencing Libra.
“While this might be acceptable for speculative investment purposes, it would not be for payments widely relied upon by households and businesses,” he said.
Noting that a global stablecoin would be a “cross-border phenomenon,” the governor said that there should be minimum international standards for stablecoins.
Bailey also raised the prospect of central bank-backed digital currencies (CBDC), which are currently being considered by a Bank for International Settlements grouping that includes the Bank of England.
Offering them, Bailey said, would allow “broad access” to central bank money in a digital form.
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But they would also raise “profound questions about the shape of the financial system and the implications for monetary and financial stability and the role of the central bank,” he said.
Others have noted that central-bank backed currencies would virtually wipe out the attraction of private sector stablecoin proposals such as Libra, since people would instead flock to those guaranteed by institutions like the European Central Bank and Bank of England.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Drawing a distinction between stablecoins and other cryptocurrency innovations, Bailey said that crypto-assets such as Bitcoin (BTC-USD) had “no connection at all to money.”” data-reactid=”40″>Drawing a distinction between stablecoins and other cryptocurrency innovations, Bailey said that crypto-assets such as Bitcoin (BTC-USD) had “no connection at all to money.”
“They may have extrinsic value — you may like to collect them for instance, and as such they are a highly risky investment opportunity,” he said.
“Their value can fluctuate quite wildly, unsurprisingly. They strike me as unsuited to the world of payments, where certainty of value matters.”