Digital Currencies Could Mitigate, If Not Eliminate, Negative Interest Rates: BoE Chief Economist

The chief economist for the Bank of England, Andy Haldane, says digital currencies could reduce the country's prevalence of negative interest rates. In a statement, Haldane further spoke on the pros and possible risks that widely-accepted digital currencies have on the financial system.

Across the highly developed financial systems, negative interest rates become a problem as citizens are not incentivized to save. The Zero Lower Bound problem, also known as Zero Nominal Lower Bound¹, occurs when the short-term nominal interest rates are at or near zero, causing a liquidity trap. Andy states that this issue arises from the

“technological constraint on the ability to pay or receive interest in physical cash, whether positive or negative.”

According to the statement, Haldane claims that a widely-accepted digital currency could be the solution to negative interest rates.

“In principle, a widely-used digital currency could mitigate, if not eliminate, that technological constraint by enabling interest rates to be levied on retail monetary assets.”

In a conference held earlier in the week, Haldane spoke on the benefits and risks that digital currencies pose – including the sovereign central bank digital currencies (CBDC) and private stablecoins. He states that digital currencies would bring along a “structural shift” and profoundly benefit financial stability.

Haldane further explained this concept as “narrow banking,” whereby there’s a division in the payments and credit-based activities across the banking system. Using digital currencies on a broader scale could set up a stable and functioning banking system mitigating the risks arising in the banking system.

Historically, the banking sector faces risks from duration mismatches on trading bank’s balance sheets – a problem that can be solved by widely-accepted digital currencies, Haldane said.

“In principle, separating safe payments and risky lending activities could lead to a closer alignment of risk and duration on the balance sheets of those institutions offering these services.”

By introducing digital currencies, the banking system would reduce its “intrinsic instabilities” by introducing a two-way route for narrow banking – “narrow banking for payments (money backed by safe assets) and limited purpose banking for lending (risky assets backed by capital-uncertain liabilities).”

Get Free Email Updates!

*Action* Enter Best Email to Get Trending Crypto News & Bitcoin Market Updates

I will never give away, trade or sell your email address. You can unsubscribe at any time.

Lujan Odera
Lujan Odera
Lujan is a blockchain technology and cryptocurrency author and editor. He has worked in the field of cryptocurrencies and blockchain technology since 2015 helping him gain enough experience to be the writer he is today. He is known for his simple writing style that allows novices to understand the field in the simplest way.

[Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

[Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer

LEAVE A REPLY

Please enter your comment!
Please enter your name here

3,511FansLike
2,795FollowersFollow
4,273FollowersFollow

Live Bitcoin Price & Latest BTC Charts

Today's Latest Crypto News

BitcoinExchangeGuide is a hyper-active daily crypto news portal with care in cultivating the cryptocurrency culture with community contributors who help rewrite the bold future of blockchain finance. Subscribe on Google News, see the mission, authors, editorial links policy, investment disclaimer, privacy policy. Got News? Contact us, we are human too. Note: nothing here is financial advice, do your own research thoroughly.

Start Using Crypto Today