The Bank Of England (BoE) has stated a “central bank digital currency” (CBDC) could raise the UK’s GDP “by almost 3%.”
Digital Currency Has ‘Number of Benefits’
In a lengthy new report published this week, the Bank studies the feasibility of introducing a CBDC, as well as the likely implications it would be have for the economy.
Its authors, research analyst John Barrdear and senior research advisor Michael Kumhof, simulating the introduction, see a raft of benefits. The Bank of England is just one of a growing number of institutions considering the idea internationally.
“Our simulations suggest that this policy has a number of beneficial effects,” they write.
The report lists the benefits as follows:
“First, it leads to an increase in the steady-state level of GDP of almost 3%, due to reductions in real interest rates, in distortionary tax rates, and in monetary transaction costs that are analogous to distortionary tax rates.”
“Second, a CBDC regime can contribute to the stabilisation of the business cycle, by giving policymakers access to a second policy instrument that controls either the quantity or the price of CBDC in a countercyclical fashion.”
Traditional finance has seen a shakeup with the results of the Brexit vote, with institutions warning of en masse relocations to the EU if an agreement is not made to ensure the City of London’s financial prestige.
Keeping ahead of the game, it could be argued, is paramount to the UK’s central bank more now than ever.
Bank of England Sees Economic ‘Net Positive’
Nonetheless, the report’s findings are careful not to overstate the benefits of digital currency – even one controlled by the bank itself.
On reducing transaction costs for example, Barrdear and Kumhof had the following to say:
We find it difficult to distinguish how much of any potential gain might reasonably be attributable to the adoption of a distributed payment system as opposed to, for example, a streamlining of multiple overlapping record-keeping systems.
Nonetheless, their findings by their own admission represent a “net positive.”
“On the basis of this preliminary discussion it seems safe to assume that the implementation of a CBDC system would be a net positive for the steady-state economy, through the alleviation of a number of frictions,” they variously summarize.
Other recent banking forays into the potential for CBDCs have come notably from Russia, which is looking to introduce a currency commonly referred to as the “BitRuble.”
While having previously stated its introduction would lead to a complete ban on Bitcoin and other cryptocurrencies beyond the bank’s control, officials’ stance this week seemingly became more lenient.
What do you think about the BoE’s latest report? Let us know in the comments section below!
Images courtesy of vice.com, tidskriftenarena.se, telegraph.co.uk
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