The Bank of England has released new research suggesting that a central bank-issued digital currency could lead to an increase in gross domestic product. The conclusions were drawn from a working paper published today that examined how a central bank-backed digital currency (referred to as a CBDC in the paper) could yield macroeconomic benefits, while providing banking regulators a clearer picture of the financial system. The authors wrote: “First, it leads to an increase in the steady-state level of GDP of almost 3%, due to reductions in real interest rates, in distortionary tax rates and in monetary transaction costs that are analogous to distortionary tax rates. Second, a CBDC regime can contribute to the stabilization of the business cycle, by giving policymakers access to a second policy instrument that controls either the quantity or the price of CBDC in a countercyclical fashion.” That said, the authors state that there are potential issues inherent in the concept and that “there remains a clear concern” about the risks in transitioning to a “different monetary and financial regime”. These concepts were explored several months ago in a speech by Ben Broadbent, the Bank of England’s deputy governor for monetary policy, who said in March that while such a system could provide greater visibility for regulators, UK banks could see an outflow of deposits. Broadbent is one of several witnesses set to appear tomorrow before a committee of the House of Lords, the upper chamber of the UK parliament. The full Bank of England working paper can be found below: BoE Paper Image via Shutterstock The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.
A new paper released by the Bank of England has suggested that central bank-issued digital currencies could generate an increase in the UK's GDP, due to "reductions in real interest rates, in distortionary tax rates and in monetary transaction costs that are analogous to distortionary tax rates". The report is part of a wider series on how digital currency can be used for economic development.