Future Forum | Bank of England

Ask the Governor about the future of money

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Future Forum
Future Forum | 4 weeks ago | in Ask the Governor

Our Governor, Mark Carney, will be logged on to Future Forum and answering your questions on anything surrounding the future of money, on 9 January at 15:30.

The deadline for question submission for the Governor ahead of his session is now closed. The Governor will do his best to address as many of the questions as possible. Please remember to login in at 3:30pm on Wednesday 9 January to view his responses and to submit your questions live to the Governor.

edited on Jan 8, 2019 by Future Forum

andu 4 weeks ago

With the prolonged 10 year period of near 0% Interest rates and the various QE programs used by central banks around the world. In your opinion, how likely is a large spike in Inflation in the near future?

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Mark Carney 6 days ago

In my view, the performance of advanced economies over the past decade has shown that these policies were the right response to an extremely dangerous economic crisis.

The 2008 financial crisis threatened depression and mass unemployment, with the least well-off most exposed. Fiscal policy in advanced economies quickly came under severe strain as tax revenues plunged, the costs of social benefits rose sharply, and the huge bills for too-big-to-fail banks came due. In the face of severe headwinds to growth, that meant monetary policy was “the only game in town” for providing support to our economy.

What if the MPC had not acted? Simulations using the Bank’s main forecasting model suggest that the Bank’s monetary policy measures raised the level of GDP by around 8% relative to trend and lowered unemployment by 4 percentage points at their peak. Without this action, real wages would have been 8% lower, or around £2,000 per worker per year, and 1.5 million more people would have been out of work. In short, monetary policy has been highly effective.

Without this support from monetary policy, we risked getting stuck in a situation of deficient demand, leading to inflation that was too low – not too high, and to unemployment that was unacceptably high.

The prolonged period of near 0% interest rates has also been a necessary response to structural developments in the global economy.

A set of powerful forces are currently depressing what economists call the ‘equilibrium’ interest rate – the policy rate that, if allowed to prevail for several years, would place economic activity at its potential and keep inflation low and stable. These forces include demographic change, slower potential growth, higher credit spreads, lower desired investment, a lower relative price of capital, greater income inequality, sustained private deleveraging and lower public investment.

So in other words, low policy interest rates are not the caprice of central bankers, but rather the consequence of powerful global forces. Setting real interest rates higher over the past decade would, in time, have generated rising unemployment and falling prices.

Many of the structural factors currently weighing the global equilibrium interest rate are likely to persist for many years to come. That’s why the MPC expect that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.

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Bekah Griffiths 1 day ago

Its interesting how velocity (in the US anyway-Ive not seen the UK) really slowed down after QE. I guess reflecting everyones wariness to actually use that money to invest.(But hey, what can you do? QE was better than nothing!) I wonder if the fall in productivity growth post crisis is due to lower capital accumulation because of firms being more risk averse? And also, given that R&D is even riskier, maybe R&D fell significantly and reduced the rate of technological progress? Then we finally get an investment led global recovery and - oh I guess im not supposed to say anything insulting on this forum-but Im sure you know exactly who Im thinking of!

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Parimal 4 weeks ago

Are likely to have a MULTIPLE MAJOR crash not becuase purely of BREXIT in terms of Banking, Housing, Retail, Public Sector i.e. Local Authorities, NHS, Police, Mental Health, UnEmployment, GBP/Currency and major companies/employers pulling out of UK due to BREXIT?

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Mark Carney 6 days ago

Let me reassure you that the Bank is ready for Brexit, whatever form it takes.

On financial stability, our job is to ensure that the financial sector is robust enough to withstand a wide range of different scenarios. The Bank doesn’t focus on the most likely outcome, but rather the possible consequences of a disorderly exit from the EU, however unlikely that may be.

We have been working since the referendum to identify and address the major risks that Brexit could pose to the financial sector.

In recent years we have subjected UK banks to severe but plausible stress tests, ones that encompass the wide range of UK macroeconomic risks and associated losses that could be associated with Brexit. UK banks have steadily built capital buffers during this time. As a consequence, the stress test results show that the core of our financial system is strong, and banks will continue to be able to lend to businesses and households whatever happens.

We’ve also worked closely with the UK government, other UK authorities and our European partners to manage possible risks of disruption to the financial system

As a result of these actions, the financial system will help to dampen, rather than amplify, any adverse shocks.

From a monetary policy perspective, the MPC is well-prepared for whichever path the economy takes. We have the tools we need. We will be prudent not passive. We will respond to any change in the outlook in these exceptional circumstances to bring inflation sustainably back to target while supporting jobs and activity, consistent with our remit.

Most fundamentally, our institutional framework is robust: the Bank has clear objectives, operational independence, all the necessary tools, and the resolve to deliver our monetary and financial stability remits.

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Andrew Capel 4 weeks ago

When can we expect to be able to deposit our money in a Bank of England account rather than having to deposit a commercial bank. The commercial banks could, for a fee adminster our accounts, but they would no longer have a right to own the money.

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Nick Blurton 4 weeks ago

You could use NS&I, that's not a commercial bank.

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Andrew Capel 1 week ago

If everyone's current account was deposited with the Bank of England, the funds would be safe. If we wanted to try and make some of our money earn interest by having it invested it could be done directly with the banks. In this later case we could lose as well as make money and their would be no need for Depositors insurance scheme nor Government Bank bailouts. In effect Banks would become real businesses, able to fail without the fear of devastating the whole economy, because the investors would take the hit and not get their money back. it would be part of the accepted risk.

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Mark Carney 6 days ago

This is a great – and important – question. In fact, the Bank is already considering what changes we could make to the types of payment providers that can access accounts and systems at the Bank of England to help improve the private sector’s provision of financial services to the broader economy.

The Bank’s role is to provide banking services that can only be provided by the central bank; and our specialism is dealing with very large sums of money. This includes enabling the safe and efficient processing of high value payments, providing the means for commercial banks to transfer money efficiently and safely between each other, and by taking deposits from, and offering lending facilities to, participants in the wholesale money market. When we deal in that market, we do so to implement that Bank’s monetary policy decisions. In all our banking and market operations we are in close contact with many of the participants as part of our work to supervise banks and building societies.

We believe that a competitive private financial system is the best route to ensuring retail customers benefit from cutting-edge financial services.

For three years now we have been running with the Financial Conduct Authority, a new banks start-up unit to make it easier for new entrants to come in and challenge the large, high street banks. Indeed since 2013 we have seen 37 new banks gain approval to operate, 4 of which are digital only banks.

The Bank is also in the process of broadening the access to and upgrading the United Kingdom’s main high value payment system – the real-time gross settlement system or RTGS – to create a platform where competition and innovation can flourish.

Last year we were the first G20 central bank to open up the system to non-banks and saw three firms seeking to provide innovative new payment services to retail customers join as members.

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Fred Needle 4 weeks ago

Does he envisage one of the types of IMF SDRs to become a global currency in his lifetime? If so, will it be crypto/blockchain/gold 'backed'?

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Mark Carney 6 days ago

The IMF’s SDRs are designed for a specific purpose – to supplement IMF member countries’ official reserves and so help them to address balance of payments problems. So they are not intended to become a widely accepted means of exchange – what most people understand ‘currency’ to mean.
 
That said, I think it is likely that we will ultimately have reserve currencies other than the USD. The evolution of the global financial system is currently lagging behind that of the global economy, and there are asymmetric concentrations of financial assets in advanced economies relative to economic activity. For example, EMEs’ share of global activity is now 60%, but their share of global financial assets lags behind at around one-third. And half of international trade is currently invoiced in US dollars, even though the US has a much lower 10% share of international trade. As the world re-orders, this disconnect between the real and financial is likely to reduce, and in the process other reserve currencies may emerge. In the first instance, I would expect these will be existing national currencies, such as the RMB. However, history suggests these transitions will not happen overnight. The US economy overtook Britain’s in the second half of the 19th century, but it took until the 1920s before it became a dominant currency in international trade.

It is early days for cryptoassets, but in their current form they are not promising as a form of money let alone as a global currency. They are poor stores of value – for example there is extreme daily variation in their value. Cryptoassets are not accepted on the high streets or at online retailers as a form of payment in the UK. And they currently raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of sanctions which authorities here and overseas are working to address.
 
However, the core technologies underlying cryptoassets, including distributed ledger technologies (DLT), have the potential to generate innovations that could serve the public better. More fundamentally, cryptoassets represents a broader reorganisation of the economy and society into a series of distributed peer-to-peer connections across powerful networks. People are increasingly forming connections directly, instantaneously and openly, and this is revolutionising how they consume, work, and communicate. Yet the financial system continues to be arranged around a series of hubs and spokes like banks and payments, clearing and settlement systems. Crypto-assets are an attempt to create the financial architecture for peer-to-peer transactions. Even if the current generation is not the answer, it is throwing down the gauntlet to the existing payment systems. These must now evolve to meet the demands of fully reliable, real-time, distributed transactions.
 
With this eye towards the long-term, the Bank of England is currently upgrading the UK’s Real Time Gross Settlement (RTGS) system – the backbone of every payment in the UK – so that it has the capability to interact with DLT in the future. And in parallel the Bank is working to connect RTGS and the systems run by other central banks. In November we published a report produced in collaboration with the Bank of Canada, the Monetary Authority of Singapore and several private sector banks on existing challenges and possible models to improve the speed, cost and transparency of cross-border payments, including a model based on DLT.
 
It would be undesirable to base the value of a global currency on gold. Under the Bretton Woods system – the international system of linking exchange rates to the US dollar which was pegged to gold existing from 1944 to 1971 – there was a fundamental tension in that the global supply of gold did not grow in line with the global demand for money. This tension peaked in the early 1970s and the system collapsed. Since then, major economies have moved towards a system of floating exchange rates, and the basis for the SDR's valuation has also been switched from gold to the more stable arrangement of valuation based on a basket of currencies.

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SWAT Marketing 6 days ago

So you're saying there's a chance? #Bitcoin

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Neil Craig 4 weeks ago

Managing my SIPP used to be a doddle with QE in Europe and the USA supporting global equities markets and making it 'almost' impossible to pick an underperforming fund. Now that QE is coming to an end the markets are all over the place and it looks like we will be in correction territory soon. What type of fund should I invest in to safeguard my SIPP?

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Stefanie (BoE Moderator) 3 weeks ago

Hi Neil,
Thank you for your question - I am afraid we can't help on this as this takes us into the realm of financial advice. The FCA has a register of regulated IFAs as well as a checklist. You can access it here: https://www.fca.org.uk/consumers/finding-adviser

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Sunny Mistry 4 weeks ago

I have recently started my own accountancy firm and I want to know, how likely is it that the economy will start using crypto-currencies to pay for goods and services. Will the crypto currency market ever be regulated and brought into the mainstream.

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Mark Carney 6 days ago

Sunny, thank you for your question. As an accountant, you will know that money plays an important role in society. Money is defined by how well it serves as a store of value with which to transfer purchasing power from today to some future time; a medium of exchange with which to make payments for goods and services; and a unit of account with which to measure the value of a particular good, service, saving or loan.
The Bank of England’s view is that cryptocurrencies do not meet these criteria, so cannot be considered as money.
 Cryptocurrencies are proving poor short-term stores of value. For example, in November last year, Bitcoin lost over 40% of its value in less than 2 weeks.
 
Crypto is also an inefficient media of exchange. No major high street or online retailer accepts Bitcoin as payment in the UK. For those who can find someone willing to accept payment for goods and services in cryptocurrencies, the speed and cost of the transaction is slower and more expensive than payments in sterling. For example, Visa can process up to 65,000 transactions per second globally against just 7 per second for Bitcoin.
 
Given that they are poor stores of value and inefficient and unreliable media of exchange, it is not surprising that there is little evidence of cryptocurrencies being used as units of account. Retailers that quote in Bitcoin usually update at very high frequency to maintain stable prices in traditional currencies such as US dollars or sterling.
 
Cryptocurrencies are still important to financial policymakers, which brings me to your second question. Crypto-assets raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of capital controls and international sanctions. Regulators will consider the issues that are within their respective remits. For the Bank of England this means assessing whether crypto could destabilise the financial system. For what it’s worth, we don’t think they will as they make up a very small (less than 1% of global GDP) bit of the economy and institutions have minimal exposures to cryptoassets.
You might find some of theses Bank of England Knowledge Bank articles interesting:
- What is money?
- Why does money depend on trust?
- What is legal tender?
- How has money changed over time?
- What is a cryptocurrency?
- Will cash die out?
- How money is created
 
As well as reading the speeches my colleagues and I have delivered on these topics:
- The future of money
Insights into the future of money

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Michelle (BoE Moderator) 6 days ago

Hi Sunny

The Knowledge Bank Guides can be found here:
1. https://edu.bankofengland.co.uk/knowledgebank/what-is-money/
2. https://edu.bankofengland.co.uk/knowledgebank...epend-on-trust/
3. https://edu.bankofengland.co.uk/knowledgebank...s-legal-tender/
4. https://edu.bankofengland.co.uk/knowledgebank...nged-over-time/
5. https://edu.bankofengland.co.uk/knowledgebank...yptocurrencies/
6. https://edu.bankofengland.co.uk/knowledgebank/will-cash-die-out/
7. https://edu.bankofengland.co.uk/knowledgebank...-money-created/

And the speeches can be found here:
1. The future of money
https://www.bankofengland.co.uk/-/media/boe/f...8C1566E7AC91418
2. Insights into the future of money
https://www.bankofengland.co.uk/-/media/boe/f...81C01E42BEF806D

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Knox82 4 weeks ago

Hi Mr. Carney, the recent uncertainty in Brexit and tension of trade war has negative impact on asset, many sectors(such as retail, energy, technology, etc.) are struggling or having a correction. Which asset, in you opinion, should be held by majority, for stabilisation?

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Stefanie (BoE Moderator) 3 weeks ago

Good Morning,
Thank you for your question - I am afraid we can't help on this as this takes us into the realm of financial advice. The FCA has a register of regulated IFAs as well as a checklist. You can access it here: https://www.fca.org.uk/consumers/finding-adviser

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Boz Styne 4 weeks ago

When will the BoE begin issuance of digital cash?

https://www.bankofengland.co.uk/-/media/boe/f...al-currency.pdf

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Mark Carney 6 days ago

Boz, thanks for your question. I know there’s been a lot of interest in this topic throughout the Forum.

As Adam Smith taught us, money is something which is a store of value, can be used as a medium of exchange for goods and services and acts as a unit of account to measure the value of a good. We accept that the token of exchange that we call money can be physical - made of metal or polymer - or digital, made of computer code. And indeed, physical cash still plays a very important role in our society. There were 13bn cash payments in 2017, accounting for a third of the total volume of consumer and business payments. That’s why we are still committed to physical money and announced the launch of our new polymer £50 note last year.
 
But the Bank of England must also keep pace with changes in the economy. These forum discussions help us understand how you are making payments and what the Bank needs to do to support these changes. In a poll launched on the forum last month, we asked people what forms of payment they used the most. Almost 60% said card payments and 10% said they use ApplePay.
 
So there is clearly a future for digital payments, even if true digital currencies may still be a way off (see my response to Sunny about crypto).
 
Technology could potentially catalyse innovations to serve the public better in three respects:
- By creating money or payments systems that better societies’ changing preferences, particularly for decentralised peer-to-peer interactions;
- Through the possibilities that crypto technologies offer to transform the efficiency, reliability and flexibility of payments; and
- By the questions they raise about whether central banks should provide a central bank digital currency (CBDC) accessible to all.
 
Let me address these briefly.
 
First, crypto-assets are part of a broader reorganisation of the economy and society into a series of distributed peer-to-peer connections across powerful networks. People are increasingly forming connections directly, instantaneously and openly, and this is revolutionising how they consume, work, and communicate.
 
Yet the financial system continues to be arranged around a series of hubs and spokes like banks and payments, clearing and settlement systems. These must now evolve to meet the demands of fully reliable, real-time, distributed transactions.
 
Second, technology, particularly distributed ledger, can help manage and replicate data, enhance transparency through instant, permanent and immutable records of transactions; and improve efficiency in payments.
 
These properties mean distributed ledger technology could transform everything from how people manage of their interactions with public agencies, including their tax and medical records, through to how businesses manage their supply chains.
 
Third, and to your question about the Bank issuing its own digital currency, crypto-assets raise the obvious question about whether their technology could be combined with the trust inherent in existing fiat currencies to create a central bank digital currency (CBDC).
 
Currently only banks can hold central bank money electronically in the form of a settlement account at the Bank of England. To be truly transformative a CBDC would open access to individuals and firms – the central bank issuance of digital cash that you asked about.
 
The Bank has an open mind about the eventual development of a CBDC and has an active research programme dedicated to it. That said, given current technological shortcomings in distributed ledger a true, widely available reliable CBDC is still a long-term prospect.
 
Our current priority therefore is to focus on the first and second benefits I described: to support further innovation in payments by building the right public infrastructure, such as the RTGS renewal programme to support societies changing preferences, such as peer to peer transactions and cross-border payments.
 
To find out more you can visit our Knowledge Bank site pages:
- How money is created?
- How do card payments work?
What happens when you pay?

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Michelle (BoE Moderator) 6 days ago

Hi Boz

The Knowledge Bank guides can be found here:
https://edu.bankofengland.co.uk/knowledgebank...-money-created/
https://edu.bankofengland.co.uk/knowledgebank...-payments-work/
https://edu.bankofengland.co.uk/knowledgebank...s-when-you-pay/

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Kacper2224 4 weeks ago

Hello Mr Carney,

I am curious about your opinion on the stock market, our economy and the current state of the Great British Pound Sterling.

With so much volatility in the market due to trade wars, unpredictable governments and uncertainty regarding our exit from the EU how do you see markets performing after Brexit ?

What’s your opinion on all the people predicting another recession in 2019/20 and the FTSE 100 coming to a 2 year low? Are we likely to see any growth and improvement in the market and economy in the next few years ?

Finally, what is your opinion on the current state of the Pound Sterling ? Having lost almost 45 pence of value against the United States Dollar in the past 4 years are we likely to ever see it recover ? What are your thoughts on the future of the Pound Sterling after 2019 ?

Thank you for your time.

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Mark Carney 6 days ago

Thanks for this great set of questions. I should stress here that the following should not be taken as investment advice!

You’re correct that markets have been volatile lately for a number of reasons, not just Brexit. Concerns about the possibility of slowing global growth and a deterioration in trade relations have also been affecting financial conditions globally.

In the UK, the effect of Brexit is most evident in the exchange rate, which remains some 15-20% below its pre-referendum level. The lower level of sterling reflects the judgement by financial markets that leaving the EU would lower UK real incomes, for example through raising costs or by reducing productivity in the tradable sector for a period of time.

More recently, Brexit uncertainties have been starting to show up more in other assets prices too, like UK-focused equity prices and bank funding costs.

How markets perform over the coming year will depend on how things develop globally, as well as on Brexit.

For the UK, the Bank’s current forecast, based on an agreement with the EU being reached and a smooth transition to that new partnership, is that demand will continue to grow moderately (around 1½% to 1¾% per year), a little above the rate of supply growth.

Of course, the nature of that partnership is currently the subject of fervish debate in Parliament and the prospects for sterling will depend heavily on how Brexit actually progresses. In the case of a smooth transition to a relationship that is judged to have a relatively small long-term economic impact, financial market participants might expect a smaller hit to UK real incomes than currently, causing the exchange rate to appreciate. In contrast, a disruptive withdrawal from the EU could result in a more pessimistic view and some further depreciation.

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trevken 4 weeks ago

Hi Mark,

Is it not true that there are 3 main ways new money is produced;

1, Injected into stock markets, QE etc. by central bank (benefits the rich as they get it first)
2, Through unpaid loans (benefit banks when interest paid down).
3, Through social programs that go directly into the grassroots economy/printed/minted by Gov't.

If so why don't you correct the government when they talk of a "Money Tree" stopping us from investing to direct our economy to serve our social and environment needs rather than continuing to help the already rich and greedy?

This isn't even a partisan issue. The only real question is how far into the future we are willing to go into deficit or how much we are willing to tax the rich to that the supply/demand remains stable for the exchange rate value, correct?

Many thanks,

Trevor

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Mark Carney 6 days ago

You’re right that money, broadly defined, can be created in three main ways: first, printing notes and coins; second, by creating central bank reserves, perhaps to be used to buy financial assets (Quantitative Easing, or QE); and third, through the creation of new loans (and the corresponding deposits in borrowers’ accounts) by banks and building societies.

QE is distinct from the spending and investment decisions of the government. Asset purchases are an independent tool of monetary policy, used to provide support to demand when it is weak. The amount of QE is determined by Bank’s Monetary Policy Committee, who calibrate the amount required to meet the 2% inflation target set for us by the government. If the government wishes to borrow to invest, that is a matter of fiscal policy, and is for the government to determine, not the Bank.

Let me add a couple more points in response to your post. First, the Bank’s research on QE – which we have published in working papers and discussed in speeches – indicates that it has had widespread benefits, as it supported demand in the wake of the financial crisis. It’s true that those with financial assets (typically older people) have benefited directly from higher asset prices. But it’s also the case that young people benefited from job creation and wage growth that would not have occurred had we not undertaken QE – the Bank estimates that its monetary policy measures after the crisis raised the level of GDP by around 8% relative to trend and kept 1.5 million more people in work. Indeed, inequality in the UK has fallen a bit since the crisis. You can read more about this analysis here.

The benefits from bank lending are a two way street. The bank receives interest in return for taking credit risk and managing the complexities of a financial institution’s balance sheet. The borrower pays interest in return for being able to smooth out their borrowing and saving decisions over their lifetime, in the way that best suits them.

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Michelle (BoE Moderator) 6 days ago

Hi Trevor
To read more about the analysis please visit https://www.bankofengland.co.uk/-/media/boe/f...e-of-monetarism

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trevken 2 days ago

Thanks Mark, without prompting you to be too political, your response seems to suggest that Labour party John McDonnell's economic manifesto could be fully costed and we can actually increase buying/spending power to direct the economy towards environmental protection and social improvements, without the GBP crashing even further than it has under the Conservatives? In your personal opinion?

Many thanks.

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Believing CBDC 3 weeks ago

Governor,

My questions are somewhat lengthy & I had decided to post in the Ideas format in this Forum. I expect there should be a lot of questions for you here on this page, so I don’t mind if in case you can’t respond to me immediately. Please take your time.

Please follow below link to the questions:
https://bankofenglandfutureforum.co.uk/post/677280

Thanks!

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Mark Carney 6 days ago

Yen, thank you for your detailed thoughts. As I replied to Boz Styne earlier, we have an open mind about the eventual development of CBDC, but this is one of a number of issues we’re looking at concerning the future of money. You can read about the Bank’s view on CBDC in my response to Boz, but keep an eye out for the Bank’s Future of Finance report that will be published mid next year for a more information on the next steps for a CBDC.  

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BNSW19 3 weeks ago

I have one observation (or request or demand even!) and one question.

On 18 September 2015 the Bank of England’s chief economist said (when addressing Northern Ireland’s chamber of commerce under the heading ‘Negative interest rates on currency’), “A… proposal… would be… abolishing paper currency.”

“Scrap cash altogether, says Bank of England’s chief economist” was the Financial Times’ headline.

But Andy Haldane was not the first – if I recall correctly, the Swedish Riksbank said the same in 2014, pointing out how useful it would be to be able to force savers/consumers to spend by ensuring it could destroy the value of their savings by means of negative interest rates.

With no cash, we would face a choice between keeping/losing our money in a bank account with a negative interest rate or spending it (on something we probably neither want nor need).

As it is, the government mandates The Bank of England to set interest rates so that the annual inflation rate is about 2% such that every £100 saved buys only £98 worth of goods in a year’s time.

The move to a cashless society is one from covert to daylight robbery and - and this is my request - is one that must be resisted despite the costs cash incurs (to bank customers, shareholders and the government).

You and city economists may argue that inflation targeting - i.e. the impoverishment (in real terms) of people - is justified in economic terms (I would disagree) but - and this is my question - how can it be morally justified?

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Mark Carney 6 days ago

To be clear, the Bank is not proposing to abolish cash, it’s still used in a third of the total volume of consumer and business payments. The announcement of a new polymer £50 last year shows our commitment to cash.

We have also made clear that we wouldn’t set negative interest rates – the Bank’s Monetary Policy Committee, which is responsible for setting Bank Rate, has said that the effective lower bound on Bank Rate is close to, but a little above, zero.

On your question about the level of the inflation target, long and varied experience has shown that price stability is the best contribution monetary policy can make to the public good.

It’s definitely the case that high inflation is damaging to society. It is not merely that rising prices mean households have to shop around or businesses have to update their prices periodically. High inflation distorts price signals, inhibits investment, and can ultimately damage the productive potential of the economy. It hurts the least well off the most, particularly those who don’t hold equities or property as well as those whose incomes are fixed in nominal terms.

Equally, deflation can imperil growth and employment. In a highly indebted economy, deflation raises real interest rates, increases debt burdens, lowers wages, and reduces growth. In the extreme, these can morph into debt deflation, causing very high and persistent unemployment and financial collapse.

The happy medium is low, stable, predictable inflation over the medium term.

There are good reasons why central banks around the world, including the Bank of England, target a low, positive rate of inflation not no inflation. A little inflation ‘greases the wheels’ of the economy, for example by helping inflation-adjusted wages adjust more smoothly to changes in companies’ demand for labour and facilitating shifts in resources between sectors in response to changes in supply and demand. Moreover, a positive inflation rate gives monetary policy space to deliver better outcomes for jobs and growth when shocks hit, without the distortionary costs of high and volatile inflation.

From a more technical point of view, the official rate of inflation might also over-estimate the true rate at which prices are rising because it is hard to strip out increases that reflect improvements in the quality of goods and services on offer. Aiming for a 0% inflation target would risk forcing the economy into deflation in the medium term.

So low and stable inflation is in the best interests of society – it avoids the undesirable extremes of high inflation and deflation, while giving the economy greater flexibility to react to shocks that could otherwise cause large swings in output and employment.

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BNSW19 1 day ago

My question wasn’t “about the level of the inflation target” but about inflation targeting per se.

Of course high inflation can be damaging but there’s a difference between (a) high inflation reflecting a society’s desire for goods more than its desire for money and (b) high inflation as a result of weak monetary policy. You write that “high inflation distorts price signals” but doesn’t a central bank’s raising and lowering interest rates do just that — in fact, don’t ‘artificially’ low rates cloud the signal manufacturers receive by creating the illusion that the demand for goods is high (as the demand for cash is low in a low interest rate environment)? And I would argue that it squeezes the middle rather than the least — ie most indebted — well off.

As for the fears of deflation — well, I don’t buy it. Yes, what you write is correct — deflation can imperil growth and employment but it hasn’t always done so. Look at Japan — three decades of deflation or broadly stable prices (depending on what and when you measure) and across virtually every one of the UN’s measures of social wealth and health — life expectancy, literacy, infant mortality, homicides, unemployment rates, etc — Japan does better than the US and the UK. It’s as though everyone who writes about inflation, read the same books, went to the same universities, got the same jobs and climbed onto the same roundabout of bank or asset manager or newspaper to Treasury or central bank and back again.

It’s crazy when you think about it: the establishment wishes to get the consumer/voter to spend by having prices rise (by 2%; or having them fear rising future prices)! Er, if you want them to spend, why not lower prices? I mean, what would incline you to spend: a lower price or a higher price? Ah, you say — and this is your point about growth and employment — if people think prices will fall, they’ll defer spending, they won’t spend at all. But we know that’s not true: computer prices have fallen for decades but that hasn’t stopped us buying computers; you won’t not buy food if you’re hungry; you’ll drink if you’re thirsty; you’ll still buy your fiancée her engagement ring; you won’t wait until next year to buy a coat if you’re cold.

An inflationary society is one in which manufacturers can hide behind inefficiencies and in which the consumer will get rid of his money unthinkingly. A deflationary society is one in which the manufacturer strives for efficiencies and increased productivity and applies creativity to meet a consumer need rather than a consumer whim (for example, to tempt the consumer not to wear last year’s coat).

Yes, I agree that “low and stable inflation is in the best interests of society” and I suppose that you consider this — your economic justification — the ‘moral’ justification for your willing impoverishment of every saver in the country (it isn’t) — but my point isn’t that a 2% target is better than a 0% target but on the advisability of having inflation targets at all. I guess that our difference is one of ideology: I think GDP and inflation outcomes should result from the aggregate saving or spending and borrowing or lending actions of millions of individuals and commercial agencies and not from the actions of government agents that have a monopoly on the manipulation of the price of money. And the idea that every political party effectively colludes to transfer 2% per annum of savers’ wealth to debtors still rankles.

Anyway, thank you for your considered reply. There’s much that is re-assuring in it (with regards to cash) — although, of course, the Bank’s mandate as dictated by future governments risks always being subject to change.

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Bekah Griffiths 1 day ago

Sorry Im not Mark Carney but as I was reading your interesting reply a few things came to mind. Firstly, there is an example of a time in the US before they had inflation targeting and they got themselves into a right mess with wild, rampant inflation. It was damaging and disruptive so they had to take painful steps (raising rates) to reduce it. This is known as the Volcker disinflation. There is also a really useful article in p39 of the (BoE's) August 2018 Inflation Report that explains why interest rates are so low. Its not just down to the Bank, its also driven by market forces, so the resulting hit to savers isnt the fault of policymakers. In fact, if they raised rates now people would be far worse off than losing out on savings.

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gary bradley 3 weeks ago

Why is the real way money is created obfuscated from the people ??
The BoE have announced that money is created from nothing when loans are given - but not even my bank staff knows this. Unless this becomes common knowledge - the Banks will never be trusted...

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George Gordon 3 weeks ago

There are at least 3 papers published by the Bank of England which agree that money is created ex nihilo when loans are made, i.e. the loanable funds model is entirely wrong -
https://www.bankofengland.co.uk/-/media/boe/f...-modern-economy
https://www.bankofengland.co.uk/-/media/boe/f...51BF48D71A0316A
https://www.bankofengland.co.uk/-/media/boe/f...51170DB94C8A771

You could make this a more pointed question by asking the Governor if he agrees with those papers.

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Mark Carney 6 days ago

I absolutely agree with these papers, but I don’t agree that they're at odds with a theory of the supply and demand for funds that properly takes into account the ability of banks to create money and recognises that such money – if provided in the right amount – provides useful transactions and liquidity services to households and businesses. Indeed the classical theories of loanable funds always took these factors into account when thinking about the appropriate rate of interest to set in the economy.

Importantly although the Bank papers correctly note that banks have the power to create money, they also emphasise that power is not unlimited. Importantly the Bank of England’s policy committees can influence the incentives for banks to create money through monetary and prudential policy instruments. The key is to set monetary and prudential policies in such a way that the money creation process supports the Bank’s ability to meet its joint remit of ensuring monetary and financial stability. As I noted in my previous answer, the major UK banks are now required to hold substantially more capital than they did before the crisis – their capital ratios are three and a half times higher than they were previously. As a result banks’ have far greater capacity to absorb losses on their lending than they did previously.

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Mark Carney 6 days ago

There’s a super article on Knowledge Bank that explains how money is created:
https://edu.bankofengland.co.uk/knowledgebank...-money-created/
We also have a more technical Quarterly Bulletin article:
https://www.bankofengland.co.uk/quarterly-bul...-modern-economy

It’s important to recognise that banks can’t create money without limit. Ultimately, the amount of money in the economy reflects the actions of the Bank of England. We set the interest rate, which affects how much high street banks charge for lending money, and therefore how much demand for new loans there will be. And we regulate banks and building societies, requiring them to hold a certain amount of financial resources, called capital, in case people default on their loans, which affects how willing banks are to provide loans.

Since the crisis, the UK has been at the forefront of G20 reforms to create a global financial system that is safer, simpler and fairer. The common equity requirements and buffers of large global banks are now ten times higher than the pre-crisis standard.

As a result of the post-crisis reforms, the major UK banks hold substantially more capital than they did before the crisis – their capital ratios are three and a half times higher than they were previously. The major UK banks have also completed the ring-fencing of their critical domestic high-street businesses from their riskier wholesale activities. And they have significantly increased the amount of loss absorbing resources they hold (now up to 25% of their risk-weighted assets). These reforms mean that UK banks would be able to continue to meet credit demand from the real economy, even in a severe adverse scenario.

More broadly, the Bank is very aware of the importance of trust in all that we do. As a central bank, we need to be understood, credible and trusted for our policies to be most effective. We want you to know that we are on top of things so you can go about everyday life without worrying about monetary or financial stability.

Greater transparency makes our policies more effective and helps households plan for the future. Transparent communications also improves our accountability. If you have the right information, you can assess our performance and hold us to account, and are more likely to give us the authority and independence we need to carry out our functions.

Familiarity breeds trust. That’s why we’ve become more transparent about our work. We are also transforming how we communicate, including through introducing layered communications targeted at different audiences and taking part in discussions like this. The Future Forum is an invaluable opportunity for us to hear from you.

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gary bradley 4 days ago

Unfortunately you have not responded to my question at all... I asked why the people are not educated on the creation of money ?? and you answer by "talking economics..." It says it all Mr. Carney...

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Shmuel 3 weeks ago

In your capacity as Governor, would you view a weakening £ as a positive or a negative, assuming the Sterling takes a dive after March of 2019?

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Mark Carney 6 days ago

A flexible exchange rate acts as a valuable shock absorber for an economy because domestic wages and prices are relatively “sticky” (in other words, slow to adjust). For example, suppose a country suffers a hit to productivity. All else equal, its output will fall and its current account deteriorate. With an independent currency, exchange rate depreciation can dampen these effects by improving competitiveness. The depreciation of sterling following the referendum reflected the judgement by financial markets that leaving the EU would lower UK real incomes, partly by weighing on productivity in the tradeable sector for a period.

The appropriate monetary policy response to an exchange rate depreciation will depend on how large and persistent its effects are. In the UK, the speed of pass-through from a change in sterling to consumer prices is relatively large and fairly slow, meaning they can materially influence the medium-term outlook for inflation. So the Bank’s Monetary Policy Committee needs to consider developments in sterling when setting policy.

The exchange rate is just one of a range of asset prices that my colleagues and I on the Bank’s policy committees have to take into account when setting policy. And asset prices are just one aspect of the economy that we have to consider. For example, for monetary policy, we look at demand and supply as well to work out what we need to do to ensure inflation returns sustainably to target.

If you’d like to learn more about the exchange rate, check out our Knowledge Bank: https://edu.bankofengland.co.uk/knowledgebank...-exchange-rate/.

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George I 3 weeks ago

Governor,
WIth relevance to the upcoming RTGS/NPA renewal programmes and the adoption of ISO 20022 messaging scheme, is there potential for further use cases (other than the ones prescribed in the relevant BoE publications) for leveraging the perceived characteristics of transaction data to inform monetary and financial policy?

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Mark Carney 6 days ago

Common data standards are the bedrock of a robust and dynamic financial system – they are a crucial piece of our ‘soft’ public infrastructure. The use of common data standards could help:
o reduce financial stability risks by increasing transparency in markets and improving our individual and collective ability to oversee financial stability risks in the system
o boost the efficiency and effectiveness of finance by slashing processing and administration expenses and giving faster and more certain settlement, therein cutting transaction costs and freeing liquidity and capital to be applied to more productive uses
o enable new products and services and powerful networks that can better match savers and borrowers and produce more tailored products that meet the needs of users of finance
o fuel the fourth industrial revolution, by providing the foundation for big data analytics. As you mention, we are realising the promise of data standards and are supporting the adoption of ISO 20022 for richer payments data.
We are also supporting Legal Entity Identifier (LEI), a best in class international standard, which would be of great benefit, both to individual organisations and to the economy as a whole.
Precise and accurate identification of legal entities engaged in financial services enables firms and regulators around the world to gain an improved understanding of the aggregate risks of entities and their counterparts. Wider use of LEI could improve financial crime prevention, enhance productivity and enable more data-driven decision making for both monetary and financial policy.
Moreover, the development of new technologies, particularly those related to machine learning and artificial intelligence, can help us better utilise this data and inform policy decisions.
This is why we are mobilising a Bank-wide project to implement machine learning across a number of areas where we believe it could benefit the effectiveness and efficiency of our work.

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ANT HARRISON 3 weeks ago

The financial world is waking up to the long-term potential and necessity of cryptocurrencies, but is the Bank of England aware of Electroneum?

Electroneum is a UK fin-tech company with a mobile-based cryptocurrency of the same name in full compliance with Know Your Customer and Anti Money Laundering laws, making them unique within the cryptocurrency space.

They have an Instant Payment System faster than Visa with web integration to rival PayPal and they're introducing a revolutionary global remittance service in Q1 2019 with 0% transfer fees.

I would think it would be in the interest of The Bank of England to get on the phone to Director Chris Gorman (OBE) or CEO Richard Ells

https://electroneum.com/

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Mark Carney 6 days ago

Ant, thank you for your question. Fintech is an important part of the Bank’s work. We recognise that technological innovations have the potential to make finance more efficient, cost effective, resilient, and accessible.
 
I won’t comment on the specifics of Electroneum, but rest assured that the Bank is embracing many new technologies, some of which you may read about in my other answers, and from 2016-2018 we ran a FinTech Accelerator at the Bank, which developed Proofs of Concepts for enabling technologies from machine learning to distributed ledgers.
 
The Bank recognises that a new economy, a new world and new demographics demand a new financial system, so last year we launched the ‘Future of Finance’ project to explore what the financial system of tomorrow might look like, and what it means for the Bank of England’s priorities now and in the future. During this process, we have spoken to financial market participants, new fintech firms, big tech firms and members of the publics to shape future policies so are in conversation with the type of firms you describe.

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Michelle (BoE Moderator) 6 days ago

Hi Ant
For more information about the Future of Finance project please visit https://www.bankofengland.co.uk/research/future-finance

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Ron Delnevo 1 week ago

My questions to Mark are as follows:

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Ron Delnevo 1 week ago

My questions are as follows 1) the Peoples Bank of China has declared that is illegal for retailers and eateries to refuse to accept cash payments. Such refusals are becoming a significant issue in the UK. Will the Bank of England take the same stance as the Peoples Bank, in the Public Interest? 2) the Bundesbank produces detailed reports on the German Payments Market. This helps to ensure both statistics and their interpretation are not slanted by vested- interests. Will the Bank of England follow this Bundesbank lead? 3) the Riksbank made the error of handing the management of the Swedish currency to a subsidiary of commercial banks. What steps is the Bank of England planning to ensure a similar mistake is not made in the UK?

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Mark Carney 6 days ago

Let me take each question in turn.

First, it is for the government to decide on the legislation around the use of cash.  The Bank of England’s role is to ensure that, given that legislative framework, both electronic payments and cash are as efficient and resilient as possible. We are committed to cash.  We have just launched a consultation for the character that will be the face on the new polymer £50 note.  We are looking for a scientist and have received a fantastic response, with over 200,000 nominations from the general public.  
 
Second, In terms of research into cash use, there is a fair amount out there already.  The Bank has published articles in our Quarterly Bulletin (in 2015)[1] and given speeches (in 2017)2 on the future demand for bank notes.  There are also various reports published by the industry, including “UK Payments Market 2018” by UK Finance.
 
Going forward we always welcome additional research on this topic, and the Bank will continue to analyse how cash demand might change, and the possible impacts that could have on our objectives.

Third, we are also working closely with other authorities and the cash industry to ensure that the system for distributing cash remains effective, resilient and sustainable as payment preferences change over time.  That includes holding discussions with other  central banks on the measures they have taken in response to changes in patterns of cash usage, to ensure we learn the appropriate lessons.  Indeed we are discussing with the Riskbank to learn about their model of cash distribution and their experience with how it has worked.

[1] Fish, T. and Whymark, R. (2015), ‘How has Cash Usage Evolved in Recent Decades? What Might Drive Demand in the Future?’, Quarterly Bulletin, Bank of England.
Miller, C. (2017), ‘Addressing the Limitations of Forecasting Banknote Demand’, available at http://www.bankofengland.co.uk/banknotes/Docu...esbankpaper.pdf

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Ron Delnevo 6 days ago

Mark

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Ron Delnevo 6 days ago

Mark

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Ron Delnevo 6 days ago

Mark Thank you for your responses. 1) the government is rather tied up with Brexit. They probably need the Banks help on the future of Cash.2) Too many reports are funded by vested interests. We need more unbiased intelligence. 3) I would talk to Switzerland as well as Sweden - the Swiss have perfect Payment Choice.

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Ratidzo (BoE Moderator) 1 week ago

Moderation status changed: Clear

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Simon Youel 1 week ago

With high levels of both private and public debt, it is commonly argued that the Bank of England is out of ammunition in terms of conventional monetary policy, and that the Treasury is restricted in its ability to provide fiscal stimulus through conventional means of borrowing.

Therefore should the central bank and the government not consider working together more closely and introducing monetary financing as a policy response for the next downturn? As I expect you are aware, monetary financing was a tool deployed by the Bank of Canada throughout much of the twentieth century, and one which helped the Canadian economy to quickly recover from shocks such as the Great Depression and the Second World War, allowing it to enjoy its longest ever period of prosperity, without having a significant inflationary effect.

Surely monetary financing would be a far better response than more QE, which would continue to sow the seeds for recurring crises by inflating asset bubbles and stacking up debt piles even higher?

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Mark Carney 6 days ago

The Bank of England’s institutional framework has served us well over the past decade. Operational control of monetary policy delegated to the MPC, tasked with achieving the government-set inflation target, allowed monetary policy to respond boldly and effectively to the biggest financial crisis in a century. The MPC provided significant support to demand, helping avoid the threat of depression and mass unemployment. That it was able to do so was because of the credibility of the inflation target, and the monetary policy framework more broadly.

The MPC has used a range of unconventional monetary policy tools to provide support to the economy since the crisis, including purchases of gilts and corporate bonds and a Term Funding Scheme for banks to reinforce the pass-through of cuts in Bank Rate to the interest rates faced by households and businesses. There is scope to expand all these elements, should further monetary stimulus be required to meet the inflation target.

Although it’s true that QE helped support asset prices, it also boosted job creation and wage growth.

Concerns about levels of debt in the economy are rightly an issue for prudential policy makers, not monetary policy makers. That is why when the Bank was fundamentally reformed after the crisis, the procedures and structures of the MPC were largely replicated in the Bank’s two new prudential policy committees, the FPC and the PRC.

Since the crisis, the stock of total credit relative to GDP has fallen by over 30 percentage points, and households in particular have increased the resilience of their balance sheets. The share of households who spend a high share (over 40%) of their income on servicing mortgage debt remains close to historic lows, and interest rates would need to increase by almost 300 basis points for this share to reach its historic average. Recent growth in aggregate credit in the UK has been modest, growing a little faster than nominal GDP. Of course, there remain risks and the FPC in particular watches these closely. For example, the level of total credit is still high relative to historical standards, and the higher risk segment of the corporate credit market has grown rapidly over the past two years. But we do not have any reason to believe that risks from private sector debt are particularly elevated right now.

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James Manson 1 week ago

Hi Mark,

If there was a liquidity management tool, ready to be utilised, in the face of yet another financial crisis, driven by a lack of liquidity - would you use it? If so, then why isn't it being used already?

Regards

James

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Mark Carney 6 days ago

Since the crisis both the Bank and international regulators have developed liquidity management tools, and we stand ready to use them in the face of any shocks.

The Bank has adapted its approach to lending to the UK financial sector. The Bank’s approach can be summarised in four words: we’re open for business.
We now provide liquidity against a wider range of collateral, to a wider range of counterparties, for longer terms, and at lower fees than ever before. And we stand ready to provide liquidity in a range of foreign currencies if required. This new approach was tested during the EU referendum, and it passed. With hundreds of billions of pounds of pre-positioned collateral and regular, flexible and widely accessible Bank of England liquidity auctions, markets stayed open and price discovery was smooth and effective. Today banks have collateral pre-positioned at the Bank of England that would allow them to borrow over £300bn.

The resilience of major UK banks’ funding structures has also improved significantly since the financial crisis. Banks’ more risky funding (short-term wholesale funding) has reduced as a proportion of total funding to 3.8% from 15.2% in 2007. Major UK banks now hold more than £1 trillion of high-quality liquid assets (which can be sold to fund their balance sheets), which is more than four times the level they held before the financial crisis. They could withstand more than three months of stress in wholesale funding markets.

In part these improvements are a result of global reforms to liquidity standards which have also been adopted in the UK. The main ones are the Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR). The NSFR means that banks must maintain a stable funding profile, so they are less likely to experience liquidity stress. The LCR means banks must hold liquidity buffers which can be deployed in stress. Dropping the LCR requirement (and so banks’ required liquidity buffers) is a key liquidity tool available to the Bank’s policy committees. Our supervisory approach also makes clear that liquidity buffers are expected to run down in stress. The Bank’s supervisors regularly test banks’ liquidity positions to different stress scenarios.
Liquidity stress has occurred in the past, both here and overseas, when banks incur losses and have insufficient capital to absorb them. So the significant improvement in banks’ capital positions since the crisis also reduces the chance of liquidity stress in future. Banks’ capital ratios are now three and a half times higher than they were previously.

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Steve 1 week ago

How does the BofE view the increased utility of digital assets? (e.g. the use of XRP through RippleNet as a bridging asset for cross border payments and transfers) and is the BofE working towards the use of a digital asset to perform this or any other monetary tasks?

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Mark Carney 6 days ago

Hi Steve. As you may have seen in my other responses, the Bank is engaged with fintech developments and aware of many of the companies offering services and products that could make the financial system more efficient, accessible and resilient.

In 2016 the Bank launched a Fintech Accelerator programme to test proofs-of-concept with a variety of fintech firms, looking at new ideas in cyber security, distributed ledgers, machine learning, and data analysis. Ripple was one of the firms we worked with in 2017. For that proof-of-concept study, we looked at whether two transactions in different currencies could be executed simultaneously in separate RTGS systems. We did the test by simulating the RTGS systems in the cloud.

The proofs-of-concept are all available on the Bank’s website. In this case, the team was able to show that we could successfully synchronise transactions across RTGS systems. The important test is that, if one of the synchronised transactions fails to go through, the other part should not go through. That shows the system is working properly and could in principle be used for cross-currency conversions.

This is one of many things that could solve the problem of slow and costly cross-border payments: at the moment, they are 10 times more expensive than domestic payments. The Bank is renewing its RTGS system – the backbone of every payment in the UK – to help lower the costs and increase speed. By broadening access to RTGS and improving data standards, we will reduce the reliance on so called “correspondent” banks that can access our central payments systems on behalf of others and reduce the compliance costs associated with payments.

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Crypto Justin 1 week ago

When will XRP be used in cross border payment and SETTLEMENT as at the moment it takes days to settle payments cross border. In the days of the internet, it would be faster to fly the money to the US than use swift, which is slow and antiquated. Faster, cheaper & more convenient payment and settlement needed like XRP that can settle in seconds with up to 50K Transactions per second

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Mark Carney 6 days ago

Justin, this is an interesting observation and one that the Bank recognises. At the moment, cross-border payments are slow and costly and we’re investigating how we can reduce these frictions. Steve got there first asking about XRP, so it’s worth reading the response I’ve posted to his question.

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Andrew (BoE Moderator) 1 week ago

Thanks to everyone who has contributed questions for the Governor. Please do keep them coming. He will do his best to answer as many as possible. Do bear in mind that the theme of this forum is the future of money so he will focus on answering questions that are aligned with the topics we have been covering on the platform.

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Siddhartha Pradeep 1 week ago

First the currency was backed by gold, but then we went off the gold standard. Then the currency was pegged to dollar which was then pegged to gold, and later we let it go too. Now we are in the free floating world dominated by US dollar. Historically US dollar has not been "handled with care" given the responsibility it had being in some sense the world's currency. Given this and under current scenarios, what is the future of currency market? Will it continue to be dollar dependent? Secondly, what does future hold for crypto-currencies?

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Mark Carney 6 days ago

As I noted in my reply to Fred earlier, I think it is likely that we will ultimately have reserve currencies other than the USD, as EMEs’ share of global financial assets increases to reflect their growing importance for global activity, and these are likely to be existing national currencies, such as the renminbi. However, history suggests these transition will take time.

Fred asked a similar question about cryptocurrencies too. While it is early days, cryptocurrencies currently are not promising even as a form of money let alone as a global currency.

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Jack Krarup 1 week ago

Hello Mr. Carney, I am currently in the final stages of an application to one of the Bank of Englands brilliant graduate development programs and would love to hear back from you in regards to this topic.

My question is; with the BoE being the sole issuer of currency in the UK how does a transition to digital currencies affect the future role of the bank in terms of being a central institution within the UK economy? Furthermore, I have a great deal of interest in the technologies that digital currencies are based around so what, in your view, is the future potential of technologies such as blockchain?

Thank you for your time

Jack Krarup

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Mark Carney 6 days ago

Jack, please see my reply to Sunny above. The nature of payments is clearly changing in the economy with greater amounts of digital payments and we are monitoring these developments closely. The Bank of England already makes digital currencies, in the form of central bank reserves, available to financial institutions in Sterling wholesale money markets. We have been taking steps in recent years to broaden access, by allowing non-bank financial institutions to set up reserve accounts with the Bank and to join the country’s wholesale payments system, RTGS. This provides a base through which a broader range of firms can foster innovation in electronic payments right across the economy. With regards to blockchain, the technology is not yet mature enough to power critical payment systems, such as the Bank's RTGS system. But we are working to make sure that our new RTGS will be compatible with any new payment systems or financial technology that relies on DLT.

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Thomas D 1 week ago

What do you think about bitcoin, and how do you plan to ensure that the UK won't fall behind other countries with regards to fostering the development of this new tech in its own interests?

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Mark Carney 6 days ago

Thank you for your question, Thomas. On Bitcoin, please see my reply to Sunny above. My view is that crypto-assets such as Bitcoin are failing as a form of currency. They are a poor store of value, an inefficient medium of exchange and a virtually non-existent unit of account. However we are open minded to the possibilities offered by the distributed-ledger technology that underlies crypto-assets. Alongside the Treasury and FCA, the Bank has been closely involved in the Cryptoasset Taskforce, assesses the associated risks and potential benefits, and sets out the path forward with respect to regulation in the UK.

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Ramblingsofabard 1 week ago

Where does the governor get his suits made from? :)

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Shelley (BoE Moderator) 1 week ago

Thank you for your question. However, the Governor's Q&A will be on the topic of the forum - The Future of Money, therefore he will concentrate on answering those questions.

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Ramblingsofabard 1 week ago

Having tried the cash and cashless challenge in London, I am confident that cash is here to stay (the balance towards cash would be even stronger in other regions). Two questions here: 1) how does the bank ensure that parts of the community are not left behind in this implicit drive towards cashless society. 2) is it for the bank to purport a particular replacement of cash or would it leave it to the market forces?

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Mark Carney 6 days ago

Thank you for your question. Please see also the answer I gave to Ron.

We are committed to cash. We have just launched a consultation for the character that will be the face on the new polymer £50 note. And we are working closely with other authorities and the cash industry to ensure that the system for distributing cash remains effective, resilient and sustainable as payment preferences change over time.

It is not for the Bank to purport a particular replacement for cash, or to choose between cash or those alternative forms of payment. Our approach is to provide currency – both physical and electronic – in a way that maintains stability and meets the needs of the general public efficiently and effectively.

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Future Forum 1 week ago

Thank you for submitting so many great questions for the Governor so far. The deadline for question submission for the Governor ahead of his session is midnight tonight (Monday 7 January). The Governor will do his best to address as many of the questions as possible. Please remember to login in at 3:30pm on Wednesday 9 January to view his responses and to submit your questions live to the Governor.

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NicolA27 1 week ago

The future of money needs to work for all citizens and consumers, ensuring that the poor no longer pay more or get less because of how they pay. How will the Bank ensure that the "future of money" understands and addresses the needs of different social and economic groups to promotes financial inclusion and economic equality and opportunity?

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Mark Carney 6 days ago

While primary responsibility for financial inclusion doesn’t fall to the Bank, it is really important to us. In order to maintain confidence in the currency, we need to understand how different people choose to pay, why they make these choices and how these choices might change going forward. We know from industry data and our own research that people from lower income households are generally more reliant on cash and that heavy cash users are less likely to proactively switch payment methods. We are working with the private sector to operate the wholesale cash distribution system – we are committed to ensuring that this system remains fit for purpose, so that cash is distributed where it is needed.

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OscarWGrut 6 days ago

Does this mean we won't see the UK going cashless anytime soon?

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Simon Youel 6 days ago

What is the Bank of England doing to ensure that people's right to access and pay with cash is protected?

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Engelsman 1 week ago

In Holland various shops/cafes etc do not accept cash and they are not legally obliged to accept cash. I understand that here in the UK cash as legal tender means that UK shops/cafes must accept appropriate cash offered - is this correct and what would be required to change to the Dutch model

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Mark Carney 6 days ago

First, let me reassure everyone that the Bank has no plans to abolish cash. Indeed, we’ve recently announced our plans to issue a new £50.
 
It is the Government in the UK, not the Bank of England, who determine what counts as “legal tender”. The meaning of “legal tender” is actually quite narrow – it relates to settling debts, and has little practical meaning for everyday transactions. It means that if you are in debt to someone then you can’t be sued for non-payment if you offer full payment of your debts in legal tender. But the definition does not restrict the use of other means of payment for general transaction. This Knowledge Bank article provides an excellent overview of what legal tender means.
 
In the UK, like in the Netherlands, shops are not actually obliged to accept cash – and indeed some retailers in the UK have chosen to go cashless. However, the Bank will continue to provide cash as long as people want to use it.

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Michelle (BoE Moderator) 6 days ago

Hi Engelsman the Knowledge Bank article can be found here https://edu.bankofengland.co.uk/knowledgebank...s-legal-tender/

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Chris Dagnall 1 week ago

Hi Mark. Digital assets is my subject question. Ripple connects banks and payment providers via RippleNet to provide one frictionless experience for sending and receiving money globally. Will BOE be adopting this new technology in 2019? Chris

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Mark Carney 6 days ago

Thank you for your question, Chris. You might be interested in my answer to Steve. The Bank worked with Ripple in 2017 as part of a proof of concept exercise where we explored whether two transactions in different currencies could be executed simultaneously in separate Real Time Gross Settlement (RTGS) payment systems. The Bank of England is currently upgrading the UK’s Real Time Gross Settlement (RTGS) system – the backbone of every payment in the UK – so that it has the capability to interact with new technologies, including distributed ledger. In parallel to this exercise, we are working to connect RTGS and the systems run by other central banks. Last November we published a report produced in collaboration with the Bank of Canada, the Monetary Authority of Singapore and several private sector banks on existing challenges and possible models to improve the speed, cost and transparency of cross-border payments.

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Sean Longman 1 week ago

Is it time for the Bank of England to move some of its functions to other areas of the country, in particular, to the north of England to encourage public and private investment in the infrastructure in this region of the UK? Surely with the technology available today, there is little reason why the work the Bank of England does can't be done anywhere in the UK.

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Mark Carney 6 days ago

Thank you for your question Sean. Though the head office of the Bank of England is in London, we have twelve regional agencies across the country so that we are able to maintain contact with households and businesses right across the country. Each year, our twelve regional agents coordinate 9000 discussions with contacts, 600 presentations across the country and 60 visits to the regions by the Bank’s policymakers.

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Lucy Meakin 6 days ago

Can you tell us more about the work of the BOE's fintech hub and the specific ideas that they are exploring that may influence the future of money? What do you think will be the next big development? In addition to helping innovation, is the hub also a way of keeping an eye on a disruptive technology before it grows systemic and reaches a point where flaws, cracks and crisis points could emerge? Thanks

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Mark Carney 6 days ago

Lucy, welcome to this public consultation…and thank you for your questions on the work of our Fintech Hub. 
Fintech is one of the Bank’s Strategic Priorities. The challenge for policymakers is to ensure that FinTech develops in a way that maximises the opportunities and minimises the risks for society.
To realise the full extent of fintech’s promise, the Bank is taking steps to enable new technologies, empower new providers and promote competition.
The Bank's Fintech Hub is actively engaged with existing market participants and new fintech firms to understand the impact of the technology on the system. Through this we can gauge the technology developments on the horizon and their impact.
For the Bank, we expect that this technological revolution in finance will make electronic forms of payment easier to make and faster to settle. I expect that eventually, fintech will deliver more tailored products, keener pricing, and more diverse sources of credit for households and SMEs.
The Bank is considering what new “general purpose infrastructure” it should develop to help citizens and businesses realise the opportunities of new financial technologies.
This includes renewing our hard infrastructure, we are in the midst of an ambitious rebuild of the Real Time Gross Settlement (RTGS) system – the backbone of every payment in the UK.
This rebuild will make it easier for people to plug in and pay, even across borders, by allowing access to a host of new, non-bank payment providers.
The electronic money flowing through their systems will become more like its physical relative. More electronic payments will become instantaneous by using QR codes or mobile phone numbers. Checkout can be eliminated.

RTGS is also being re-configured to lower the excessive costs of cross-border payments for businesses and their customers. For example, the Bank of England is working with the BoC and MAS on to reduce the frictions in cross-border payments.

The potential returns are large. At present, cross-border payments can cost ten times more than domestic ones. We estimate that in the UK alone there is scope to realise annual savings of over £600 million. Most fundamentally, the more seamless are global and domestic payments, the more UK households and businesses will benefit from the new global economy.
The Bank is also ensuring our rules, regulations and supervisory processes – or soft infrastructure – needed for this new finance to thrive are fit for purpose. This includes improving data capture to make it portable and comparable. One example could be to require the use of LEIs for all corporate payments. LEIs will enable consistent and accurate identification of legal entities on a global basis and improve the data capture of payments. This is a building block of making SME company data more portable (if companies want to be able to more seamlessly access competing financial service providers). In this way, banks and nonbanks can assess the credit-worthiness of SMEs, helping to close the £22bn funding shortfall that SMEs face in the UK.
Another example is work on making greater use of AI and Machine Learning in supervision by making the data reporting process better tailored to the needs of supervisors. Digital Regulatory Reporting (DRR) is the automation of regulatory data collection, and could potentially lead to significant improvements in both the cost and timeliness of data. The idea is based on machine readable reporting requirements that firms’ systems could automatically interpret and satisfy via a secure regulator-firm digital link. This would allow regulators to collect data on an ad hoc basis from firms as required, in close to real time without any manual intervention at either end.

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Lorenzo Simngo 6 days ago

How is the bank prepared for a no deal scenario with the EU. Which monetary policy tools can the bank use to buffer the predicaments of crashing out of the EU (GBP crashing, Slow growth with high inflation)