Scrap Cash Altogether, Says Bank of England’s Chief Economist Chris Giles, Economics
Chris Giles, Economics Editor - ft.com
Having already decided to cast paper notes aside in favour of plastic, the Bank of England’s chief economist has proposed getting rid of cash altogether.
For many, the idea of abandoning a system that has been with us for centuries in favour of a government-backed digital currency will seem a step too far. But Andy Haldane, the radical thinker at the BoE, argues that such a move would give the bank new flexibility in the event of another downturn.
In a speech to the Northern Ireland chamber of commerce, he said it would help the bank to manage inflation by enabling it to bypass the current constraint against lowering rates below zero.
The assumption is that if a central bank introduced negative interest rates {taxes?}— a radical move that would effectively amount to a charge on holding money — people would convert deposits into cash. But abolishing cash would remove that option.
The speech reflects policymakers’ nervousness that they lack reliable tools to boost spending. Other economists have also argued that cash restricts central banks’ ability to stimulate a depressed economy.
The Swiss and Swedish central banks have succeeded in setting negative interest rates. But most policymakers still believe in an “effective” lower band not far below zero. Some central bankers argue that if the lower band were removed, they would be better equipped to confront a slowdown.
Mr Haldane said he felt that the world was slipping into a “third phase” of the economic crisis that started in 2008, and that there could be a need to cut interest rates from their current historic low of 0.5 per cent, “to support UK growth and return inflation to target”.
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