The idea of a central bank digital currency,
sometimes known as ‘fedcoin’, is nothing new.
As cash is the only way the public can hold
central bank money, a banking system utilising
deposits is necessary for a functional financial
market. But if people could hold central bank
currency directly, the entire system could be
simplifed.But this in effect will require then
the removal of the regions associated banks,
a situation unlikely to occur.
The Bank of England estimates
a digital currency could boost output by three per
cent. However the BOE is yet to
launch its own and show this is in
fact the case.
While those discussions were thought of as
merely academic before the financial crisis, they
became more widespread in its aftermath when
post-crisis quantitative easing sent interest rates
negative in some countries. Thus the effect
was past between banks but not the consumer
at large , thus resulting in an ineffective
central bank policy/rates situation.
Yet this could only be
applied to funds within the financial system, and
not to cash. The great fear was, therefore, that at
a certain point, negative rates could precipitate a
bank run. A fedcoin was the solution to all this,
and the distributed ledger would allow the
fedcoin to come into being.Thus policy/rates
would impact the individual directly ,
and he would in effect be his own bank
too (on their android).