When news broke about the recent discussion by the Bank of England to issue their virtual currency, there was a slew of mixed reactions. The Bank of England strongly feels this move could help boost the GDP, which could not come at a better time for the United Kingdom. But whether or not that will effectively be the case, is anybody’s guess right now.
Can A National Virtual Currency Boost GDP?
Various countries around the world are considering the possibility of issuing their virtual currency on distributed ledger technology. Those plans seem to have taken more shape in the United Kingdom, though, as the Bank of England is pleading its case with government officials. With interest-bearing central bank liability in place, a British virtual currency may hold some merit in the financial sector.
Although the outcome of the meeting between the Bank of England and the House of Lords yesterday remains a mystery, new research seems to favor this concept. Granted, the study in question has been conducted by the BofE themselves,s o it may not be entirely objective. Then again, their work seems to indicate how a central bank-issued virtual currency could boost gross domestic product.
To be more precise, there are “significant economic benefits” to doing so. If the plans work as outlined in the research paper, the UK GDP could be raised by up to 3%. That would require the issuance of 30% of the current GDP against government bonds. Since there is no historic precedent for such a deliberate move, the outcome is impossible to predict.
What this national virtual currency would help to achieve is a reduction in real interest rates, as well as lower costs on monetary transactions and distortionary taxes. Taking all of those factors into account seems to yield a 3% GDP increase, although that number may differ slightly from the reality.
Holding virtual currency accounts with the Bank of England is a concept that has been kicked around for quite some time now. Distributed ledger technology can help cut many costs and provide transparent services. That being said, it remains to be seen if these accounts would be labeled as “e-cash”, or become something else entirely.
At the same time, the effects for the commercial sector will need to be taken into account as well. While it may make bank appear safer than before, taking deposits away from banks is not a good idea either. There is a fine line to be walked when venturing into DLT-based virtual currencies; that much is certain.
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