The Bank of England said a reserve-backed digital currency could reduce commercial deposits by 20%.
Central bankers were meeting to discuss 'Britcoin', a potential name for the digital pound.
The bank's governor Andrew Bailey also dismissed stablecoins as a potential alternative.
The Bank of England has said commercial bank deposits could fall by a fifth if plans for a digital pound are implemented.
"Banks would need to adapt," deputy governor for financial stability Jon Cunliffe said. "They would lose a revenue stream from payments."
A CBDC is a digital currency issued by central banks directly to consumers and backed by fiat reserves. The BoE announced plans for a consultation on its own CBDC, nicknamed 'Britcoin', earlier this month.
The bank's representatives said that the introduction of a Britcoin CBDC would reduce commercial deposits due to faster payments and lower transaction fees.
"We're seeing a rapid growth of the crypto asset world," Governor Bailey said. "Issuing a central bank digital currency is a sledgehammer to crack… a nut that has refused to be cracked for a long time."
Alternatives to Britcoin include sterling-pegged stablecoins. But Bailey criticized these assets due to their volatility.
"They're called stablecoins, but I put the word 'stable' in inverted commas," he said. "95% of crypto is unbacked, and the other 5% is stablecoins, some of which are more stable than others."
In theory, stablecoins offer crypto investors greater certainty because they are pegged to a fiat currency like the dollar or the pound. But Tether, which runs the largest stablecoin by market capitalization, has been criticized for issuing 'untrue or misleading statements' about the extent of their dollar backing.
The BoE is one of several central banks exploring a CBDC. China has accelerated its digital yuan project to launch in time for the 2022 Beijing Winter Olympics, while the Bahamas and Nigeria have launched their 'sand dollar' and eNaira respectively.
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