BoE Chief Economist Andy Haldane said in a speech that Covid is “not a traditional cyclical shock” whose effects would eventually wash-out. It’s instead a “structural shock” with lasting implications for individuals behaviors and business model. The pandemic crisis “already flicked a digital switch”, on how we spend, work and save. The crisis has could has accelerated the changes and could “serve as a catalyst for faster innovation in the future”, he added. “What was a digital priority pre-Covid has, for many, now become a digital necessity.”.
On monetary policy, Haldane said one of the “most pressing issues” is the “zero (or close to zero) lower bound (ZLB) on interest rates.” ZLB arrives from a “technological constraint on the ability to pay or receive interest on physical cash, whether positive or negative. In principle, a widely-used digital currency could mitigate, if not eliminate, that technological constraint by enabling interest rates to be levied on retail monetary assets.” And, “the potential macro-economic benefits of easing the ZLB constraint appear to be significant.”
