Andy Haldane, the Chief Economist and the Executive Director of Monetary Analysis and Statistics at the Bank of England recently proposed that the UK should switch from a fiat to a digital currency based economy to support the UK’s economic growth.
“The balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside,” Haldane told Express U.K. “There could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target.”
“What I think is now reasonably clear is that the payment technology embodied in [digital currency] Bitcoin has real potential.”
Since February of 2015, the Bank of England has emphasized the development of government backed digital currencies, and the possibility of central bank issued cryptocurrencies.
In support of the Bank of England’s launch of “One Bank Research Agenda,” a research initiative aimed to transform the integration of research in different areas in the banking sector, the central bank of the United Kingdom has led a presentation titled “Response to Fundamental Change,” in February.
The Bank of England believes that “challenging developments in society could trigger financial stability problems. Central banks will have to anticipate these challenges as much as possible.” One of the ways banks could respond to this challenge is through the issuance of digital currencies and decentralized networks of transactions, says the Bank.
Proactive banks and financial institutions could create their own digital currencies to contribute to greater financial stability, by developing more easily controlled means of settlement and exchange. The blockchain, for example, the backbone of digital currencies like bitcoin has been the target of interest from major banks such as Barclays and HSBC who have even formed a partnership to research the technology further.
Integrating the blockchain technology onto existing financial platforms allows banks to not only settle payments, assets and transactions without human labor to significantly cut costs, but could also help Central Banks to address the problem of the Zero Lower Bound (ZLB).
Last month, Bank of England Chief Economist Andrew G Haldane explicated the concept of central bank issued digital currencies and its potential to bring the financial sector up to date with the times. Haldane explained in a presentation at the Portadown Chamber of Commerce in Northern Ireland:
“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.”
Haldane concluded the talk, saying blockchain-based central banks issued digital currencies could replace cash and all other forms of payments.