26. Januar 2021

New monetary order: digital currencies will have a role to play, for the Bank of England

The beginning of a new monetary era? – Andy Haldane is the Chief Economist of the Bank of England and a member of the Monetary Policy Committee. On Wednesday 18 November, he expressed his vision of the „new monetary order“. Digital currencies will have a role to play?

The new monetary order according to the Bank of England

On 18 November, TheCityUK – a private organisation of financial sector industrialists – organised a conference for its tenth anniversary. It was an opportunity for the Bank of England to speak through the voice of Andy Haldane.

Entitled „Seizing the Opportunities of Digital Finance“, his lengthy speech dealt with various topics relating to digital currencies. According to the economist, digital currencies could play a key role in a „new monetary order“.

„In terms of financial stability, a widely used Crypto Method would profoundly change the topology of banking operations. In other words, the traditional banking model would be disrupted. While the focus so far has been on the costs of such disruption […] The potential long-term benefits of such a structural change must also be taken into account“.

But what benefits is he talking about? For Andy Haldane, digital money could improve overall financial stability.

„In principle, separating payments and risky lending activities could lead to a closer alignment of balance sheet risks for institutions offering these services.

Negative interest rates and digital money

The most interesting point in his speech was the negative interest rates. Although they are well established in the Eurozone, this is not the case in the United Kingdom at the moment. Andy Haldane believes that the use of digital currencies could mitigate or even reverse their prevalence.

„Basically, the zero rate barrier stems from a technological constraint on the ability to pay or receive interest on physical cash. A widely used digital currency could alleviate or even eliminate this technological constraint by allowing interest rates to be charged on retail monetary assets“.

Understand: by eliminating cash and creating a digital currency to replace it, there is no longer a need for negative rates. All you have to do is tax the currency directly! An idea that has already germinated in the brains of several economists, such as Willem H. Buiter.

As for digital central bank currencies (CBDCs), the Bank of England has still not made a decision. But one thing is certain, it is actively exploring all the possibilities offered by these new models.

Andy Haldane’s speech will delight „conspirators“. From the „new monetary order“ to the „new world order“, there is only one step.