Bank of England’s chief economist: digital currencies may mitigate the need for negative interest rates

Quick Take

  • Andy Haldane hailed both the benefits as well as the risks of widely-used digital currencies.
  • In his speech, Haldane suggested that digital currencies could improve financial stability.

Andy Haldane, the chief economist at the Bank of England, has said digital currencies could mitigate the need for negative interest rates.

“At root, the Zero Lower Bound arises from a technological constraint on the ability to pay or receive interest on physical cash, whether positive or negative,” he said.

“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.”

The Bank of England is currently mulling over whether to cut the base rate to below zero, which would likely mean that banks would have to start charging customers for deposits. Sam Woods, chief executive of the Prudential Regulation Authority, sent a letter to banks seeking information about how negative interest rates would affect them on October 12. Negative interest rates already prevail in the Eurozone.

Speaking at a conference on November 10, Haldane laid out both the risks and benefits of various different variations of digital currency – including Central Bank Digital Currencies and private sta