Bank of England chief economist Andy Haldane has proposed replacing paper currency with an electronic version, allowing negative interest rates to be introduced.
Mr Haldane made the remarks in a speech to the Portadown Chamber of Commerce in Northern Ireland discussing how monetary policy should be conducted at the zero lower bound (ZLB).
He said that the case for raising interest rates in the UK was “some way from being made”, which raises the prospect of a further loosening of monetary policy being needed, particularly given the current low inflation.
Mr Haldane said: “One interesting solution would be to maintain the principle of a government-backed currency, but have it issued in an electronic rather than paper form.
“This would preserve the social convention of a state-issued unit of account and medium of exchange, albeit with currency now held in digital rather than physical wallets.
“But it would allow negative interest rates to be levied on currency easily and speedily, so relaxing the ZLB constraint.”
Adviser view
Andrew Swallow, director of London-based Swallow Financial Planning, said: “The problem we have now is that we are flying without a safety net with interest rates being so low and we need to get them back up.
“But on the other hand, every time we think things are starting to get better something happens so I don’t envy the Bank of England’s position.”
