The Bank of England’s top economist has suggested that a digital currency based on bitcoin could alleviate monetary policy problems.
Andrew Haldane, the UK central bank’s chief economist and executive director for monetary analysis and statistics, spoke at the Portadown Chamber of Commerce in Northern Ireland on 18th September. During his speech, Haldane offered several ways in which central bankers can conduct monetary policy during a period when interest rates are close to or below zero.
Haldane suggested that central bankers consider making measures like quantitative easing a permanent part of their policy toolkit. However, he warned that trust in central banking could be marred as a result.
One solution, he said, would be for the Bank of England to issue a state-backed digital currency based on bitcoin. Supporting this initiative would be a negative interest rate levied on paper currency relative to the digital currency. Conversely, Haldane suggested that paper money be banned entirely.
On the subject of bitcoin, Haldane joined a growing chorus of central bank figures in pointing to the benefits of bitcoin and, more broadly, blockchain-based transaction systems. He said in the speech:
“What I think is now reasonably clear is that the distributed payment technology embodied in bitcoin has real potential. On the face of it, it solves a deep problem in monetary economics: how to establish trust – the essence of money – in a distributed network. Bitcoin’s 'blockchain' technology appears to offer an imaginative solution to that distributed trust problem.”
Yet the issue of opting to use a digital currency backed by the Bank of England, according to Haldane, is still very much unresolved.
“Whether a variant of this technology could support central bank-issued digital currency is very much an open question,” he said. “So too is whether the public would accept it as a substitute for paper currency. Central bank-issued digital currency raises big logistical and behavioural questions, too. How practically would it work? What security and privacy risks would it raise? And how would public and privately issued monies interact?”
“These questions do not have easy answers,” he added, before noting that Bank of England researchers are currently working on such initiatives.
Bank of England image via Shutterstock