Andy Haldane, Chief Economist at the Bank of England, said digital currencies could reduce the need for negative interest rates.
“In principle, a widely used digital currency can reduce, if not remove, this technological constraint by allowing interest rates to be applied to retail monetary assets.”
The Bank of England is currently working on whether to reduce the interest rate below zero, and if this happens, banks will start charging their customers for deposits. Sam Woods, CEO of the Prudential Regulation Authority, sent a letter to banks on October 12 to learn about how negative interest rates will affect them. Currently, negative interest rates prevail in the Euro zone.
Speaking at a conference on November 10, Haldane revealed both the risks and benefits of Central Bank Digital Currencies and private cryptocurrencies.
Haldane stated that widely used digital currencies can have profound effects on financial stability and that loan-based activities can move forward in a cleaner way with payments.
“The instability in the banking sector is often caused by risk and time mismatches on both sides of the bank balance sheets.”
According to Haldan, separating secure payments from risky lending activities can provide a closer risk and time match in the balance sheets of the institutions that offer these services.
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