The digital currencies might move to a completely new level and BoE approves

2020 has taught us many lessons. While we have all learned how to sit still at home and how to practice social distance, we also learned how to keep the mouth shut for most of the time, at least by the masks. We have learned a lot of things and evaluated many events in our lives. While we all fell asleep in 2019 and woke up in 2020, no one was prepared for the changes and challenges the whole world would have to face anytime soon. 

While the whole world is suffering from the global pandemic and the economic collapse, some of the industries keep sinking while others on the opposite are booming. The whole period has shown us that we live in the digitalization era and that the future seems to be digital as well. Most of the industries, which are based somewhere in the internet clouds have survived, and some of them have actually benefited from the whole situation as well. 

The digital platforms, industries, and simply companies, who managed to swiftly adapt to the digitization process, have set completely new standards. The world is evolving in the tech direction and the new challenges prepare us for the bigger and even more flamboyant future. 

Among the tech industries which are battling the crisis and collapse from the frontlines, is the financial sector. Fintech has been one of the most important developments of the last decade and is a vital step for further development. The fintech is a very dynamic sphere, where changes happen at the speed of digital. This is caused by the constant globalization process and the overall digital revolution. 

The first very massive change in the fintech industry was the appearance of digital currency. Bitcoin soon became the star of the fintech stage and occupied the leading places in the global news charts. Bitcoin gained popularity almost instantly and the reason is very simple. It is easy and very reliable. Blockchain technology is safe and secure, while digital money is very comfortable. So, the question is why not? 

The future seems digital 

As mentioned before, the digitization process has started and is inevitable. The most adapted businesses and industries should hold leading positions in the global charts. And the first on the list so far is the digital currency and the forex industry, which go hand in hand. 

It is now official that the UK, which is one of the leading countries in the economic state has high hopes for digital currency. Moreover, the Bank of England wants to expand its evaluations and assessments of digital currency. It has been said that the objective opinion is set, that the digital asset shall form the new monetary order. 

Andy Haldane, the bank’s chief economist and sitting member of the Monetary Policy Committee, gave a speech on Wednesday at the TheCityUK 10th Anniversary Conference. The 19-page transcript, titled “Seizing the Opportunities from Digital Finance,” delves into various topics related to digital currencies and their impact on financial stability and monetary policy. The “traditional model of banking would be disrupted” by a widely used digital currency, Haldane said, adding that more attention needs to be given “to the potential longer-term benefits of such a structural shift.”

Haldane made his position regarding the monetary order and expressed the hope for the longer benefits. Though, according to the representatives of ForexTradingBonus.com, which is one of the biggest forex market media outlets, the forex industry is already undergoing some serious changes in regards to digital currencies. The market has been shaken not once during the past time and especially with the most recent news, when the Bitcoin almost reached its epic height, the traders were actively engaged in the process. 

The creation and further enhancement of the digital currency might affect the foreign exchange market even more. As the digital currency remains the most untouched and stable even during the most critical situation, it might be the salvation for the country’s economies. The introduction of more digital currencies might be a huge benefit for the whole forex industry, then when the benefit for the economy shall be the emergence of so-called narrow banking, which would partially segregate banks’ “safe” payments-based activities from their riskier credit business.

Monetary policy 

On the monetary policy side, the central banker believes a digital currency could mitigate or possibly even negate the prevalence of negative interest rates.

Negative interest rates are an unconventional policy tool pushed by central banks to encourage financial institutions to lend money rather than hoard it in reserve. In a negative-rate environment, financial institutions pay to park their excess cash with the central bank. The European Central Bank, Bank of Japan, and Bank of Switzerland all went down this route following the 2008 financial crisis.

When the central bank reduces rates to near-zero levels, but the inflation rate is still too low, some people might think that authorizing the negative interest rates might be one solution to this situation. This is how the Swiss National Bank (SNP) operates now, as it holds a rate of -0.75%. However, this policy has a lot of unintended consequences, including the increase in the popularity of hoarding cash.

Therefore, some central banks instead turn to quantitative easing. This essentially involves buying up government bonds, mortgage-backed securities, and other assets, in order to stimulate the economy. Here it is also worth noting that sometimes the central bankers have to face economic shocks, which might require a sizable adjustment in the interest rates, in order to maintain the price stability. 

There were also several instances in the past when the major central banks have intervened in the Forex market. One famous example of this was back in 1992, during the so-called ‘Black Wednesday’ the bank of England has spent billions trying to maintain the value of the pound, eventually ending up in a failure. 

As for now, the BoE is exploring the new cases and possibilities with digital currency. This is a new type of survival method. While no certain decision has been made yet, the Bank of England just like almost every other central bank all around the world is evaluating the possibility of a CBDC. Though, some authorities take some brave steps forward while others are reluctant or keep more cautious.