Bank of England Steps Up Research on Digital Currency Effects

LAGOS (Capital Markets in Africa) – Central-bank issued digital currencies could help the transmission of monetary policy, according to a Bank of England report.

“Monetary policy would be able to operate much as it does now, by varying the price or quantity of central bank money, and that transmission may even strengthen for a given change in policy instruments,” said the working paper, published on Friday and written by researchers including Jack Meaning and Emily Clayton.

A separate paper showed that a central-bank issued digital currency wouldn’t by definition reduce bank funding, and that credit and liquidity provision to the private sector wouldn’t necessarily contract. Those issues would be avoided if the issuance of the currency followed certain rules, including it being issued only against eligible securities like government bonds, the research shows.

The bank’s Financial Policy Committee recently concluded that the underlying technology of digital currencies has potential, and that they do not currently pose a risk to financial stability. Still, in a speech earlier this year Governor Mark Carney called for greater regulation to bring the era of cryptocurrency “anarchy” to an end.

While the BOE says it’s not planning to create a central bank-issued digital currently, it wants to understand the implications of an institution using one, and has been researching it for the past few years.

Source: Bloomberg Business News