Should the Bank of England decide to issue a widely used central bank digital currency (CBDC), the move could help the country’s economy to benefit from negative interest rates, according to Andy Haldane, the central bank’s Chief Economist and Member of the Monetary Policy Committee.
“On the monetary policy side, one of the most pressing issues for monetary policymakers today is the zero (or close to zero) lower bound (ZLB) on interest rates. At root, the ZLB arises from a technological constraint on the ability to pay or receive interest on physical cash, whether positive or negative,” Haldane said in a speech at a conference hosted by the City UK, an industry association representing the British financial sector, this week.
“In principle, a widely-used digital currency could mitigate, if not eliminate, that technological constraint by enabling interest rates to be levied on retail monetary assets. How far it is able to do so will depend on the supply of physical cash to the public, as well as any impact of the new regime on the financial system,” according to Haldane.
The latest development comes as the Bank of England is carrying out a review into the feasibility of cutting interest rates below zero, similarly to what has been done by the European Central Bank with the negative interest rate on the deposit facility.