ONLY banks are allowed to hold deposits at the Bank of England. What if that privilege were extended to others? A new speech by Ben Broadbent, deputy governor of the Bank of England, tries to spell out the economics of opening up the bank’s balance-sheet.
Expanding access to the bank's deposit facilities beyond commercial banks could work in a number of ways. Other financial institutions, like insurance companies or pension funds, could be allowed to open accounts. More radical would be to let non-financial firms, or individual depositors, do the same. In extremis, even foreigners could be allowed to park funds at the bank. The deposits might even be interest-bearing, and usable like a normal checking account.
Money of this form would combine the safety of banknotes with the convenience of a bank account. It could even, in theory, replace cash. If it did, central bankers could then use deeply negative interest rates to give the economy a boost. Even without abolishing cash, introducing what Mr Broadbent terms a ‘central bank digital currency’ (CBDC) would have significant effects.
It would pose a challenge to the commercial banks. Deposits at the Bank of England would be guaranteed by the state, even beyond the £75,000 covered by deposit...Continue reading
Source: Business and finance http://ift.tt/21FPf8h
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