Savers may one day be able to open digital money accounts at central banks such as the Bank of England but policymakers have to be careful that they do not hurt the banking industry in the process, a top BoE policymaker said on Wednesday.
While the use of digital currencies could widen the number and type of savers that can hold money with central banks, it could also take funds away from commercial banks and hurt their ability to lend, BoE Deputy Governor Ben Broadbent said.
The BoE is due to consult on how to revamp its 500 billion-pounds-a-day payment system and radical options could include using the kind of technology that underpins bitcoins, a digital currency.
Broadbent said in a speech that such a change could make deposits safer.
“Currently, retail deposits are backed mainly by illiquid loans, assets that can’t be sold on open markets… the central bank, by contrast, holds only liquid assets on its balance sheet. The central bank can’t run out of cash and therefore can’t suffer a ‘run’,” he said.
“On the other hand, taking deposits away from banks could impair their ability to make the loans in the first place.”BoE chief economist Andy Haldane last year floated the idea of abolishing physical cash and introducing a state-run digital currency as a way to give more muscle to central banks that cut interest rates below zero to boost their economies.
In his speech, Broadbent said it was highly unlikely that digital currencies would become widely used alternatives to established currencies like the dollar and the pound.
Currency Strength & Weakness – Analysis & Setups
Tues 15th March, 6.30 to 8.30 pm, Bristol
Forex Trader // Coach // Signals Service // Seminars