Central Banks Mull Digital Currency Issuance

Make the move from hard currencies to digital currencies? For central banks, the answer may be — why not?

As The Wall Street Journal reported on Tuesday (July 19), a new research paper published by a group of economists at the Bank of England has come right out to say it: Central banks should join the fray and offer up some digital coinage of their own. The United States alone, argues the research, could see a permanent kicker to economic growth of as much as 3 percent, with the added ability to use the digital currency to “tame financial booms and busts.”

The paper, which debuted on Monday, said that the economic benefits would accrue, as there would be a reduction in “real interest rates, distortionary taxes and monetary transition costs,” which have tended to act as a drag on growth. The advantage lies in the instantaneous transfer of value between holders without any financial intermediary. Large values can also transverse the globe, according to advocates, without any of the attendant friction.

It is the absence of the middleman that helps define the value of digital currency, with decentralized ledgers eliminating processing costs and also ostensibly offering a layer of additional protection.

Should central banks sign on to this, as WSJ noted, money would exist in wallets that would be used more directly than those transactions that involve banks.

The central banks continue to act as a conduit and creator of currency, but with the advent of digital currency, the ability to charge for currency creation goes away.

Digital currency would mimic full reserve banking, with the promise of full backing of every bit of currency being used.