Bank of England report: Central bank digital currency is conducive to promoting GDP growth (download the full report)

The Bank of England recently released a new research report (full text download). The report pointed out that digital currencies issued by central banks are conducive to promoting GDP growth .

The report explains in detail how central bank-issued digital currencies (CBDCs) can promote macroeconomic growth, and also describes the central bank financial system led by digital currencies.

The report states: First, CBDC will bring a steady increase of about 3% to GDP due to the reduction of real interest rates, distortionary taxes (taxes that taxpayers cannot change through their behavior) and cash transaction costs. In addition, the CBDC system is conducive to economic stability. It can become a policy tool for government decision-makers to implement counter-cyclical management policies by controlling the quantity and price of CBDC ^[1] .

Even so, the report also points out potential problems with the CBDC system. When the central bank is in the transition period between the old and new monetary and financial systems, some potential risks are likely to arise.

A few months ago, Ben Broadbent, deputy governor of the Bank of England, also mentioned the above concept in a speech. He said that CBDC is a transparent and easy-to-manage monetary system for regulators. However, the CBDC system is likely to cause deposit outflows.

Notes (↵ returns to text)

1. The basic content of countercyclical monetary policy is: during economic downturn, the monetary authorities or central banks relax loans and increase money supply to lower interest rates, stimulate investment, and thus expand social demand and promote economic growth; during periods of economic overexpansion and inflation, they tighten loans and reduce money supply to raise interest rates, limit social demand, and curb inflation. Since the tightness of monetary policy is in the opposite direction of different stages of economic cycle development, it is also called countercyclical monetary policy. ↵