Central banks have never been so powerful, yet their ability to set the cost of borrowing, put limits on bank lending and poke their noses into every corner of the financial system is insufficient for some. Now the Bank of England’s chief economist wants to abolish the cash in your wallet and charge you for a digital equivalent.
Andy Haldane argues the world economy is entering a third leg of a long crisis: an emerging market disaster is following the Anglo-Saxon and eurozone crises of 2008 and 2011 respectively. In these circumstances he wants to be able to stimulate spending in Britain but says he cannot easily do so because interest rates are constrained not to fall below 0 per cent. He worries that if the BoE set a negative interest rate — in effect charging savers to hold their money in the hope they would spend instead — people would switch to cash, stick it under the bed and thereby get around the efforts to encourage more consumption.
Attach a gloomy assessment of the efficacy of quantitative easing and other means of stimulating spending, and his answer is to get rid of cash and replace it with a digital wallet on which negative interest rates can be charged.