MNI BRIEF: CBDCs May Hit Monetary Policy Control -BOE's Hauser

Central bank digital currencies would increase competition for deposits and tend to drain reserves, detracting from monetary policy transmission and monetary control, Bank of England’s executive director for markets Andrew Hauser said on Wednesday.

With CBDCs adding to downward pressure on reserves at the same time the BOE is seeking to reduce its balance sheet, "the chances of a sudden reserves drain pushing up on market rates increase," Hauser told an New York Federal Reserve event.

This could both impact the price of credit, hitting monetary policy transmission, and could lead to commercial banks bidding up for reserves, which would push short term market rates higher relative to the official policy rate, reducing the central bank's monetary control, he said.

While Hauser stressed that these factors were not a "red light" for developing CBDCs he added that they did highlight the need for limits on their use. (See MNI INTERVIEW: UK Lawmakers Wary As BOE Looks At Digital Pound)