The Bank of England or BoE for their acronym in English, expands its analysis of digital currencies, including assessing how these assets could form the basis for a “new monetary order”.
Andy Haldane, Chief Economist of the Central Bank and member of the Monetary Policy Committee, gave a speech on Wednesday at TheCityUK’s 10th Anniversary Conference.
The 19-page document entitled “Use the opportunities of the digital financial world”, deals with various topics related to digital currencies and their impact on financial stability and monetary policy.
The “traditional banking model would be disrupted by a widespread digital currency”, Haldane added that more attention was needed “on the possible long-term benefits of such a structural change.”
One of those advantages is the appearance of the so-called narrow bench, This would partially separate banking activities based on “safe” payments from riskier lending operations.
“In principle, the separation of secure payments and riskier credit activities could lead to a better correlation of risk and duration on the balance sheets of the institutions offering these services.”
In terms of monetary policy, the central banker believes that A digital currency could weaken or even eliminate the prevalence of negative interest rates. Haldane says zero or negative interest rates “result from a technological constraint on the ability to pay or receive money in money.” Added:
“In principle, a widespread digital currency could mitigate, if not remove, this technological constraint by allowing interest rates to be imposed on retail monetary assets.
Negative interest rates are an unconventional policy tool promoted by central banks to encourage financial institutions to lend money instead of accumulating it in their reserves. In a negative interest rate environment, financial institutions pay to hold excess cash with the central bank. The European Central Bank, the Bank of Japan and the Bank of Switzerland embarked on this path after the financial crisis of 2008.
The BoE is also examining the various use cases of a digital central bank currency, or CBDC for short. but you haven’t made any decisions about According to its fintech director Tom Mutton.
Central banks around the world are examining the possibility of issuing a CBDC, and some monetary authorities are taking a more proactive approach. China, for example, recently completed the largest pilot for its digital yuan, distributing online wallets to 50,000 people.
For its part, the United States Federal Reserve has published a number of investigative reports examining the potential usefulness of a CBDC. One of the key conclusions of a recently published review of the literature was the need to identify the “intrinsic features of CBDC”.