The widespread use of bitcoin technology in finance could end up sucking deposits away from commercial banks and hitting lending in the real economy, Bank of England deputy governor Ben Broadbent has said.
In a speech at the London School of Economics, Broadbent dismissed the possibility that the bitcoin digital currency would replace the likes of the dollar or the pound, but said the settlement technology on which it rests could have far-reaching implications.
Bitcoin transactions are recorded on the so-called “blockchain” or “distributed ledger” spread across millions of computers to authenticate payments in the digital currency.
The deputy governor said the technology could eventually be used to expand access to the Bank of England’s balance sheet beyond the commercial banks that currently use it, via a new central bank digital currency, potentially draining deposits from banks.
He said: “Taking deposits away from banks could impair their ability to make the loans in the first place. Banks would be more reliant on wholesale markets, a source of funding that didn’t prove particularly stable during the crisis, and could reduce their lending.”