Ahead of a session of key cryptocurrency experts in the UK witnessing before the Economic Affairs Committee of the Parliament on Tuesday July 19 to explore blockchain technology, the Bank of England has released a research paper that studied the macroeconomic consequences of issuing central bank digital currency (CBDC).
“I don’t see how banks could compete,” said Peter Stella , former central-banking head of the International Monetary Fund and director of Stellar Consulting LLC.
The Wall Street Journal suggests that a central-bank-issued bitcoin would be a “means for policy makers to completely control the amount of money in the economy, much like full-reserve banking.”
Is that really so? Let’s take a closer look at the Bank of England proposals. Central bank issued digital currencies
Using a dynamic stochastic general equilibrium (DSGE) model calibrated to match the pre-crisis United States, the Staff Working Paper No. 605: The macroeconomics of central bank issued digital currencies finds that issuing a CBDC of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs.
Issued on Monday July 18, the paper by John Barrdear and Michael Kumhof studied the macroeconomic consequences of a central bank granting universal, electronic, 24×7, national-currency-denominated and interest-bearing access to its balance sheet via the issuance of a CBDC.
The paper says:
“Our analysis suggests that the only conditions needed to secure these gains are that a sufficiently large stock of CBDC is issued in steady state, and that the issuance mechanism for CBDC ensures that the central bank only trades CBDC against government debt instruments.” Structural issues A broader and qualitative analysis of the pros and cons of a CBDC regime by the researchers distinguished between structural issues, price and output stability issues and financial stability […]
