‘Scrap Cash Altogether and Adopt Digital Currency,’ Says Bank of England’s Chief Economist

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by Tatsiana Yablonskaya · 3 min read
‘Scrap Cash Altogether and Adopt Digital Currency,’ Says Bank of England’s Chief Economist
Photo: Aleem Yousaf/Flickr

Andy Haldane evaluates current economic situation in the world and underlines the potential of blockchain.

Bank of England, represented by its chief economist Andy Haldane, admits that it sees great potential in blockchain in the time of present financial crisis. It’s hard to deny that particular financial reforms are needed in the country. Cryptocurrencies, bitcoin and blockchain in particular are seen as a way out by one of bank’s nine interest rate setters.

Mr. Haldane underlined during his speech that “the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside”. He expressed doubts about promising future of cash saying that this payment option may need to be called off. He advocated the necessity of loosing rather than tightening the monetary reins to stimulate UK growth.

Uprise in rates could have been expected if not for the recent events in financial market. Volatility of Chinese market and decision of the US Federal Reserve to delay rate hikes made these expectations possible only by November 2016.

UK’s current interest rate is 0.5pc remaining at the same level for more than six years. Current target of 2pc is still extremely low, says Haldane. Ideally it should be doubled and reach 4pc level to flatten out the situation.

Mr. Haldane evaluated current world’s economic situation: “Among the large advanced economies, official interest rates are effectively at zero”. Central banks used to slash interest rates to improve the situation but now they mostly face depleted deposits with rates at the bottom.

Haldane doesn’t discuss recent shake-up in Greece and China as problems of a particular country and economy. “They are part of a connected sequence of financial disturbances that have hit the global economic and financial system over the past decade. They are indicative of the kind of threat emerging markets could pose to the UK’s recovery,” he added.

In July this year, the Bank of England stated that central banks consider implementing ‘hybrid systems’ involving distributed ledger technology of the type currently used to record Bitcoin transactions.

“There is more than one way in which a distributed ledger system can work, and remuneration would have to be designed in such a way as to incentivise honest participation in the system without leading to socially inefficient over-investment in transaction verification,” the Bank of England said.

Representatives of the Bank of England said that further research would also be required to devise a system that could utilize distributed ledger technology without compromising a central bank’s ability to control its currency and secure the system against systemic attack.

Bank of England is not the first one to show interest in blockchain. The globe’s leading banks, including JP Morgan, Goldman Sachs and Barclays, inform that they may integrate the blockchain in the near future. Many of them have already started testing the system. The key benefits of using the bitcoin underlying technology are a low risk of fraud and high level of transparency.

The prominent figures promoting blockchain include the name of well-known Blythe Masters, ex-JP Morgan managing director and current CEO of Digital Asset Holdings. According to her, the company is now developing software that will enable banks, investors, and other market players to use blockchain technology to change the way they trade loans, bonds, and other assets.

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