Bank of England: the release of the state of digital currency increases GDP

British regulator published a report entitled "Macroeconomics digital currencies, issued by the central bank." CoinFox is a summary of the 90-page document.

The subject of the report - the macroeconomic effects of the central bank "universal electronic continuous interest and denominated in national currency 'access to their balance through the issuance, in accordance with strictly defined rules, a digital currency of the central bank (the CBDC). As yet there is no living examples fiscal regime including CBDC, a theoretical model was used to assess the possibility of introducing such a regime and the options for monetary policy. Research stimulated by the development of private digital currencies such as Bitcoin, and allegations that these systems are superior to the traditional banking model.

The authors explain that the digital currency - not such a novelty. Money in electronic form have been around for a long time. And electronic access to them in the form of online banking and credit cards - too. According to the Bank of England, the money in the physical form, ie, coins and banknotes, which are publicly traded in February 2016, it accounted for only 4% of the total money supply. Their volume will continue to decline. The essence of it is digital currency (and its difference from the e-money) is that its use requires a distributed registry and decentralized payment system.
Cryptocurrency require verification at each stage of the transaction through a distributed registry and for this it is necessary to constantly increase the computing power. In this regard, the report's authors see economically feasible to create digital currency as part of the Central Bank, to avoid it.

The theoretical model for the report, it was decided to present in a detailed and not stylized form to more accurately show the results of the experiment and to avoid bias in assessing what economic mechanisms most affect the efficiency of CBDC.

The high degree of detail (especially in the modeling of the banking sector), according to the authors, allows you to better imagine the difference between the economies of inclusive and exclusive state digital currency, as well as generate more realistic scenario of transition to the regime of CBDC.

Style authors carry their model to the natural expansion of the traditional models of the monetary economy Sidrauski-Brock, with a number of details relating to the ratio of exogenous and endogenous money supply and total exclusion from the model of the state of the money supply.

Model calibration was performed with respect to the US economy in the pre-crisis period from 1990 to 2006.

Using the model showed that CBDC system has a number of clear macroeconomic benefits for a small number of obvious major cost. The benefits identified in this study include the steady increase in GDP by nearly 3% at issue CBDC equal to 30% of GDP, and a marked increase in the efficiency of systematic or discretionary countercyclical monetary policy, especially if the substitutability in transaction technology between accounts in CBDC and bank deposits It remains low. The analysis assumes that the only condition that is required to build on these results, it is a stable release must be a large amount of CBDC, as well as a mechanism for emissions, which ensures that the digital currency will be traded only against public debt and, hence, will not be reflected directly on the budget deficit .

In addition to these findings, the study revealed a number of important theoretical and empirical questions, to answer that you want to continue to study the principles of distributed registries technology.

Here are some of these questions:

As an alternative policy CBDC is related to public welfare, including its combination with the monetary policy, macroprudential policy and fiscal policy?

Should CBDC policies take into account the financial variables, not only inflation one, as in this study?

What are the advantages and disadvantages of CBDC introduction into the economy through spending (on goods, services and / or translation), loans (directly or through the banking system), or acquisition of financial assets, including not only government bonds, but also other types of assets? Which of these is the best guarantor of financial stability?

As CBDC emission can interact with the deployment of the quantitative easing policy?

What CBDC effect may have on the dynamics of international liquidity and exchange rates?

As CBDC administration may influence the likelihood of a run on bank deposits are at risk of default, or the dynamics of the process, if it happens?