The Central Bankers’ Bold New Idea: Print Bitcoins
When it comes to bitcoin and digital currencies, central banks might be considering the adage: ‘If you can’t beat them, join them.’
In a research paper published on Monday, economists at the Bank of England advocated that central banks issue their own kind of digital currency. Using the U. S. as a case study, they argued it could give a permanent boost to the economy of around 3%, as well as providing policy makers with more effective tools to tame financial booms and busts.
BOE economists John Barrdear and Michael Kumhof write that ‘reductions in real interest rates, distortionary taxes, and monetary transaction costs’ would boost the economy.
Much like physical cash, digital currencies like bitcoin allow direct payment from one person to another, but they also have all the advantages of bank transfers, because large payments can be made instantaneously across the globe.
But the main appeal of bitcoin isn’t that it’s electronic. In fact, most money already is: Only about 5% of money in the economy is physical cash; the rest is bank deposits.
Rather, a digital currency offers a decentralized way to make payments without needing commercial banks to stand in the middle and record the transaction. Payments are validated by other users in a global network of computers and then updated in a shared record known as the blockchain.
This post was published at Wall Street Journal on July 19, 2016.