Bitcoin and the central-bank dilemma

First Published: e-Forex Magazine 63 / CryptoCurrencies / January, 2016

Here’s a neat trick. Faced with the intractability of the Zero Lower Bound (ZLB) problem, which is that in the conventional world, negative interest rates aren’t achievable, the Bank of England’s chief economist, Andy Haldane, considered his unconventional options. One of these was to use digital currency. Paper currency could be abolished, suggested Haldane, adding: “A third option is to set an explicit exchange rate between paper currency and electronic or bank money.  Having paper currency steadily depreciate relative to digital money effectively generates a negative interest rate on currency, provided electronic money is accepted by the public as the unit of account rather than currency.” Think of the impact on demand, if there was an explicit interest-rate differential between paper and digital currency. Haldane went on to discuss Bitcoin and the blockchain. “Whether a variant of this technology could support central bank-issued digital currency is very much an...continued

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