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Bank of England sees CBDC easing the way to negative rates on cash

As the rest of the world’s central banks try to catch up with China, one can only wonder about the potential of programmable money.

The Bank of England's Andrew Haldane

It could be the most important speech of the year from a central banker.

Andrew Haldane, chief economist and member of the monetary policy committee of the Bank of England (BoE), spoke on Wednesday at TheCityUK conference about opportunities in digital finance.

He had lots to say about long-overdue innovation in payments and SME lending, all of it well argued, none of it particularly new.

The key moment came when he briefly turned to central bank digital currency (CBDC).

“On the monetary policy side, one of the most pressing issues for monetary policymakers today is the zero (or close to zero) lower bound (ZLB) on interest rates,” said Haldane.

“At root, the ZLB arises from a technological constraint on the ability to pay or receive interest on physical cash, whether positive or negative. In principle, a widely-used digital currency could mitigate, if not eliminate, that technological constraint by enabling interest rates to be levied on retail monetary assets.”

OK. Euromoney can forgive you for having missed it. Haldane is a smart central banker and so it is often hard to work out what on earth he is talking about.

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