The Bank of England's chief economist has floated the prospect of abolishing paper cash and replacing it with a state-backed digital currency as a way of facilitating negative interest rates.
Despite talk that the UK's central bank could soon finally increase interest rates from their current 0.5%, Andy Haldane says that a further cut could be needed to boost inflation and stave off a return to recession.
In a speech entitled 'How low can you go?', Haldane raises the prospect of negative interest rates, a move traditionally resisted because it leads to savers taking their money out of banks and hoarding cash.
To combat this, the economist suggests simply abolishing cash or setting an explicit exchange rate between paper currency and electronic money, with cash steadily depreciating so a negative interest rate on it emerges.
Haldane says that the introduction of an electronically-issued government-backed currency would "preserve the social convention of a state-issued unit of account and medium of exchange...But it would allow negative interest rates to be levied on currency easily and speedily, so relaxing the ZLB [zero lower bound] constraint."
Such a monetary technology would be feasible thanks to the rise of cryptocurrencies and the blockchain. Whilst Haldane acknowledges that bitcoin "divides opinion like nothing else", he says that the distributed payment technology underpinning it has "real potential".
"Whether a variant of this technology could support central bank-issued digital currency is very much an open question. So too is whether the public would accept it as a substitute for paper currency," says Haldane.
"That is why work on central bank-issued digital currencies forms a core part of the Bank’s current research agenda. Although the hurdles to implementation are high, so too is the potential prize if the ZLB constraint could be slackened. Perhaps central bank money is ripe for its own great technological leap forward, prompted by the pressing demands of the ZLB."
Separately, the chairman of the Australian Securities and Investments Commission (Asic), Greg Medcraft, has given his own endorsement of the blockchain, arguing that it has the potential to transform capital markets.
In a speech (PDF), Medcraft says that the technology has four key areas in which it can make a difference: improving speed and efficiency, enabling disintermediation, cutting transaction costs, and improving market access.
"As regulators and policymakers, we need to ensure what we do is about harnessing the opportunities and the broader economic benefits - not standing in the way of innovation and development. At the same time, we need to mitigate the risks these developments pose to our objectives," says the regulator.