Bank of England report: Central bank digital currency can boost GDP growth (full text download)

Rage Review : The issuance of digital currency by the Bank of England, the UK's central bank, can promote the growth of gross domestic product (GDP). The report analyzes how the digital currency supported by the central bank (called the World Central Settlement System (CBDC) in the report) will produce macroeconomic benefits, while providing bank regulators with a clearer picture of the financial system. However, there are risks in transitioning to a different fiscal and financial system, so it is also very important to address these risks in order to promote the popularity and development of digital currencies around the world.

Translation: Nicole

The latest research released by the Bank of England shows that digital currencies issued by central banks can promote the growth of gross domestic product (GDP).

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That’s the conclusion of a report published today that analyses how a central bank-backed digital currency, referred to in the report as a central bank digital currency (CBDC), could produce macroeconomic benefits while giving bank regulators a clearer picture of the financial system.

“First, a central bank digital currency could lead to a steady increase in GDP by 3%, due to reductions in the real exchange rate, distortionary taxes, and monetary transaction costs (similar to distortionary taxes); second, a CBDC system could enhance business stability by giving policymakers access to a second policy tool, which controls the quality and price of CBDC in a countercyclical manner,” the authors wrote.

That said, the authors see some potential problems with this concept, namely the risk of transitioning to a “different fiscal and financial system”, which remains a clear concern.

Ben Broadbent

These concepts were explored a few months ago in a speech by Ben Broadbent, deputy governor of monetary policy at the Bank of England, who said in a speech in mid-March that such a system was feasible for regulators and that British banks would see deposit outflows.

Broadbent is one of several witnesses due to appear at an event in the House of Lords in the UK Parliament tomorrow.