The Bank of England Considers its Own Take on Bitcoin for 2018
According to the Telegraph, the Bank of England might be launching its very own cryptocurrency as early as 2018, linked to the Pound sterling.
The bank created a research unit in February 2015, which has been collecting data ever since. As confirmed by a spokesperson of the Bank of England (BoE), the team is likely to reveal its findings on the feasibility study before the end of 2018. In turn, the results of the study will prompt the bank’s decision regarding its own cryptocurrency launch.
The proposed cryptocurrency would work similarly to bitcoin, using the same blockchain concept to improve the speed and efficiency of banking. Large financial transactions such as the purchase of real estate would be concluded significantly faster, to the extent that it could take mere nanoseconds to complete.
In addition, British citizens would be able to store their money in a digital form with the BoE directly, which, although beneficial for customers, may cause problems down the line for retail banks, as they would no longer be needed.
The governor of the Bank of England, Mark Carney, appears to be enjoying the project and talked of positive applications for the technology in the near future:
“The underlying technology is actually of a fair bit of interest. Most interesting application that would be beneficial for financial stability and efficiency would be using the blockchain technology for ‘settlements’ between central banks.”
While Mr. Carney foresees blockchain technology greatly improving banking processes, he is hesitant about its implementation due to potential financial stability risks. According to him, it may become problematic if the entire economy was exposed simultaneously to this new digital currency.
The concept of the banking cryptocurrency is not new to the BoE, which announced in 2016 that it had created a theoretical proto-currency called RSCoin. Admittedly, at the time, bitcoin was only worth $400 and had been dubbed a “failed experiment.” In the same year, the research unit at the BoE found that a central bank digital currency could permanently boost economic activity by as much as three percent, via the resultant reduction in real interest rates, distortionary taxes, and transaction costs.
Mark Carney is not entirely certain that the BoE is ready to launch a new cryptocurrency just yet; at least not until some of the initial bugs have been ironed out. The main problem from his point of view is the possibility of uncontrollable volumes of deposits being placed, which the bank would need to process in a short space of time, including investing the funds received into various assets.
“There are many talents of the Bank of England, but I think credit allocation across the entire economy would not be a good idea,” said Carney. “There are some fundamental problems if you push the retail design all the way down unless you restrict the amount that people have.”
According to the Bank for International Settlements (BIS) in a statement made in September 2017, it might be too soon to decide whether the creation of a central bank cryptocurrency (CBCC) would be a positive move.
However, also according to the BIS, “all central banks may eventually have to decide whether issuing retail or wholesale CBCCs makes sense in their own context.”
With the rapid developments across the board in the cryptocurrency industry, the time to determine the worth and feasibility of a central bank digital currency is fast approaching; and the Bank of England could have their version live within 12 months.