27 May 2017
Visit www.capgemini.com/worldreports

Central bank digital currency could boost GDP - BofE

19 July 2016  |  6415 views  |  0 London stock exchange 2

The introduction of a central bank digital currency (CBDC) could significantly boost gross domestic product, new research from the Bank of England suggests.

The BofE's deputy governor of monetary policy Ben Broadbent appears before the Lords economic affairs committee on Tuesday to talk about a possible 'Britcoin' — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange.

In their paper, his colleagues at the bank, John Barrdear and Michael Kumhof, say that such a plan could have major economic benefits, with issuance of 30% of GDP, against government bonds, potentially permanently raising GDP by as much as three per cent.

The paper acknowledges that with no historical experience and therefore data for empirical work it is difficult to calculate the possible benefits and costs of a CBDC. However, using a DSGE model calibrated to match the pre-crisis United States, they reach the thre per cent conclusion based largely on reductions in real interest rates, distortionary taxes, and monetary transaction costs.

Earlier this year Broadbent floated the idea of using distributed ledger technology to enable individuals to hold digital currency accounts with the central bank. In a speech at the London School of Economics he suggested a BofE account could be simply 'e-cash' that can only be used for retail transfers, or it could be a proper account that pays interest.

However, he warned that such a move would have far-reaching consequences for the commercial sector. On one hand it would make banks safer by reducing the risk of a run if a shock causes people to try to close accounts. However, he warned, taking deposits away from banks could make it harder for them to make loans and make them more reliant on wholesale markets.

The deputy governor's colleague, Andy Haldane, has also been exploring the issue, floating the prospect of abolishing paper cash and replacing it with a state-backed digital currency as a way of facilitating negative interest rates.

Read the full paper:» Download the document now 908.6 kb (PDF File)

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

House of Lords asks BofE deputy governor: Time for 'Britcoin'?

House of Lords asks BofE deputy governor: Time for 'Britcoin'?

15 July 2016  |  7674 views  |  0 comments | 12 tweets | 6 linkedin
Distributed ledger tech could see Brits get Bank of England accounts - deputy governor

Distributed ledger tech could see Brits get Bank of England accounts - deputy governor

02 March 2016  |  7616 views  |  0 comments | 17 tweets | 15 linkedin
BofE's Haldane suggests ditching cash for cryptocurrency

BofE's Haldane suggests ditching cash for cryptocurrency

18 September 2015  |  15976 views  |  3 comments | 31 tweets | 23 linkedin
Bank of England could issue own digital currency

Bank of England could issue own digital currency

26 February 2015  |  19891 views  |  4 comments | 54 tweets | 29 linkedin

Related company news

 

Related blogs

Create a blog about this story (membership required)
visit www.response.ncr.comvisit www.niceactimize.comVisit www.capgemini.com/worldreports

Top topics

Most viewed Most shared
BBVA launches Open API marketplaceBBVA launches Open API marketplace
12755 views comments | 49 tweets | 79 linkedin
Bank/fintech collaboration can take transaction banking to new heightsBank/fintech collaboration can take transa...
7616 views comments | 12 tweets | 24 linkedin
R3 raises $107mR3 raises $107m
6644 views comments | 16 tweets | 16 linkedin
TransferWise launches multi-currency business bank accountsTransferWise launches multi-currency busin...
6595 views comments | 12 tweets | 20 linkedin

Featured job

Six Figure Base + Commission + Stock Options
London

Find your next job