Monetary Policy

Essay 2250 words

On 18 July 2016, the economists at Bank of England published a research paper advocating the idea of issuing their own kind of digital currency akin to the Bitcoin
technology. BoE is not alone in this idea. A few years back, economists at Bank of Canada already proposed to Canadian lawmakers to increase research activities about
the feasibility of implementing some sort of digital currency. This is not a surprising move for the BoE since its Governor, Mark Carney, is a Canadian economist after
all.

You are required to perform thorough research around this topic. In particular, you should discuss the implications of this idea on the UK’s economy in particular as
well as on the global economy in general. You should use references that are provided in the online reading List as well as other reputable sources to gather your
information. In particular, you should discuss how the monetary policy would play out if BoE started circulating its digital currency, the rationale behind the idea,
form your expectations as to how hypothetical scenario were to come to fruition based on what you have learnt in this module and your research findings, observe the
BoE developments that have taken place since and provide some analysis as to whether or not you support the idea. You can either provide qualitative and/or
quantitative analysis of the situation.

Some key concepts worth considering:
What did the BoE become interested in digital currency?
What is a digital currency and how does one transact using it? Use Bitcoin as an example.
What are the pros and cons with digital currency technology?
Analysis of the foreign exchange market with Bitcoin in terms of volatility and costs.
Analysis among foreign currencies with interest rates and inflation.The roles of large financial institutions in the Bitcoin world.
Interbank transactions.

The list is not exhaustive by any means and there are other issues that merit further discussion, but do emphasise from the perspective of a central banker.

Introduction and Conclusion. 5 mark
General discussion on the role of digital currency in central banks, how it affects monetary policy in theory and monetary policy strategies used by the Bank of
England including their rationale. 20 mark
Discussion surrounding your expectations with regards to the implementation of digital currency as official currency based on your analysis and critical evaluation of
the UK economy conditioned on the outcome of the austerity measures put in place by the post 2008 financial crisis. 30 mark
The implications of the official digital currency application on the UK economy and the global economy. 20 mark
Analysis based on current events about what has actually happened and whether they are within your expectations. 20 mark
References. 5 mark