WSJ: Bank of England economists advocate central banks issue their own digital currency

posted almost 6 years ago
In a research paper published on 19th July, economists at the Bank of England advocated that central banks issue their own kind of digital currency. Using the U.S. as a case study, they argued it could give a permanent boost to the economy of around 3%, as well as providing policy makers with more effective tools to tame financial booms and busts.

BOE economists John Barrdear and Michael Kumhof write that “reductions in real interest rates, distortionary taxes, and monetary transaction costs” would boost the economy.

Much like physical cash, digital currencies like bitcoin allow direct payment from one person to another, but they also have all the advantages of bank transfers, because large payments can be made instantaneously across the globe.

The main appeal of bitcoin isn’t that it’s electronic. In fact, most money already is: only about 5% of money in the economy is physical cash; the rest is bank deposits. Rather, a digital currency offers a decentralized way to make payments without needing commercial banks to stand in the middle and record the transaction.

Central banks across the developed world, including the Bank of England and the Bank of Canada, are now studying the potential of this technology. Were central banks to issue digital cash and make it available to the general public, money would exist electronically outside of bank accounts in digital wallets, much as physical bank notes do. This means households and businesses would be able to bypass banks altogether.

Many economists would cheer at the prospect of all the money in the economy being issued by the central bank, instead of existing as current accounts or deposits, which are the liabilities of private banks.

A central-bank-issued bitcoin would be a means for policy makers to completely control the amount of money in the economy, much like full-reserve banking. That’s not possible right now, because private banks can create money on their own.
Tags: news, blockchain