Central banks would “struggle” to implement monetary policy in a world where digital currencies are more widely used, a senior official from the Bank of Canada said in a speech last week.
During an appearance at the Rotman School of Management and Munk School of Global Affairs in Toronto, senior deputy governor Carolyn Wilkins spoke about innovation and the changing face of central banking in a post-financial crisis world.
Wilkins pointed to bitcoin as part of a landscape of alternative financial technologies and concepts that she said are pushing more and more financial activity “outside the traditional financial sector”.
She said in the speech:
“This would create a new dynamic in the global monetary order, one in which central banks would struggle to implement monetary policy. And, central banks couldn’t act as lenders of last resort as they do for their own currencies. This means that households and businesses could suffer important losses if such an e-money were to crash.”
“We need to anticipate this and manage the risks and benefits that could arise from the broader adoption of e-money,” she concluded.
Last week’s speech wasn’t the first by Wilkins to address bitcoin. Wilkins said during a speech last year that the Bank of Canada was watching industry developments “closely”, and that one possible outcome of the technology is a reduction in capacity to conduct central bank policy.
“In the unlikely situation in which cryptocurrencies were used broadly, a significant proportion of economic transactions would not be denominated in Canadian dollars,” she said at the time. “This would reduce the bank’s ability to influence macroeconomic activity through Canadian interest rates.”
The comments echo those that have been formally issued by Bank of Canada itself, as the central bank said last year that digital currencies may pose a threat to central bank stability.
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