What I believe the BOE is exploring is for each citizen to have an account with the BOE and the potential for the types of money that can be used in this parallel banking system.
If we think of the financial system as plumbing, the central bank has direct pipes to banks but rarely to citizens. This is not usually a problem except when you need to do a big emergency stimulus push not having direct pipes to individuals means stimulus takes a long time to reach individuals (if it does at all). Even countries like the USA and UK had a challenge rolling out stimulus, so this is a mechanism to bypass traditional banking system in a crisis.
Thats just the banking aspect, the interesting stuff is what you can do with the type of money issued. For example you can build inflation into the currency, to encourage the user to spend it. Or it can be tied to carbon credits as a way to encourage the purchase of environmentally friendly products. I am not saying this is what is going to happen, only that a digital currency directly issued by a central bank has the potential to be used in ways that is not readily possible right now.
The government doesn’t need everyone to have an account at the central bank in order to deposit money directly into their account.
QE doesn’t stimulate the economy because bonds and reserves are functionally identical as far as bank capital requirements are concerned and reducing interest rate payments is deflationary.
>The government doesn’t need everyone to have an account at the central bank in order to deposit money directly into their account.
It does make it a lot easier. The US, for example, was issuing stimulus cheques because there was no way to directly transfer funds into bank accounts. The UK had the same problem, so they pushed their stimulus through employers. In both cases there was no direct pipe from the central bank to the intended recipient which is what I think is most of what BoE is trying to achieve.
QE was the equivalent of using a waterfall to put out a candle. If you squint hard enough and get drunk on supply-side wonk-juice you could convince yourself it worked.
The UK doesn't have the same problem. Our payments are entirely electronic, and there is a direct pipe from HM Treasury to every person with a Sterling bank account. The choice to run the furlough scheme via PAYE was political, not technological.
Our electronic transfer system is sufficiently sophisticated that the government can operate on a commercial bank account and have the money automatically transferred from a Contra account at the Bank of England.
The UK has some of the finest electronic banking facilities in the world.
“The US, for example, was issuing stimulus cheques because there was no way to directly transfer funds into bank accounts”
Do you have a source for this? It seems crazy to me because in Australia almost everyone just got stimulus payments deposited the same as any other government transfer payment or tax return and we don’t all have accounts at the RBA
> QE doesn’t stimulate the economy because bonds and reserves are functionally identical as far as bank capital requirements are concerned and reducing interest rate payments is deflationary.
That idea is usually associated with postal banking - letting citizens open a bank account at the Post Office that provides basic services, no interest, but no fees either.
The UK simply mandated that large banks must offer fee free basic bank accounts to all and make ATM withdrawals free from any other bank's ATMs.
(Most bank accounts in UK have no fees if you never go overdrawn anyway, but previously banks could refuse to open one if they considered you a credit risk.)
If we think of the financial system as plumbing, the central bank has direct pipes to banks but rarely to citizens. This is not usually a problem except when you need to do a big emergency stimulus push not having direct pipes to individuals means stimulus takes a long time to reach individuals (if it does at all). Even countries like the USA and UK had a challenge rolling out stimulus, so this is a mechanism to bypass traditional banking system in a crisis.
Thats just the banking aspect, the interesting stuff is what you can do with the type of money issued. For example you can build inflation into the currency, to encourage the user to spend it. Or it can be tied to carbon credits as a way to encourage the purchase of environmentally friendly products. I am not saying this is what is going to happen, only that a digital currency directly issued by a central bank has the potential to be used in ways that is not readily possible right now.