by JP Buntinx
Not too long ago, the Bank of England mentioned how they were looking into issuing their own digital currency. While this seemed like an intriguing idea, the institution has abandoned the concept, for now. The group feels there will be no “extreme revolution taking place” to warrant future development of a national digital currency. But that does not mean the project will be put on ice indefinitely.
The UK May Not Get A National Digital Currency
The situation revolving around the national virtual currency, to be developed by the Bank of England, has taken a surprising turn. When the financial institution first announced their plans for such a project, there was a mixed bag of reactions. The bank felt it made sense, given the popularity of cryptocurrencies such as Bitcoin.
A recent paper published by Bank of England seemed to indicate various bank stakeholders had agreed to the development of a national virtual currency. In fact, it was dubbed as “the blueprint for the next generation of real-time gross settlement systems.” To put this into perspective, such a settlement system is the foundation of all central bank-based operations.
With a national virtual currency, settlement of transactions over this settlement system would be completed instantly. Right now, close to £0.5 trillion worth of inter-bank transactions takes place within the confines of the UK financial sector alone. But there is another benefit to a national virtual currency, as it would make inter-bank lending easier. The Bank of England would still be able to conduct quantitative easing and manipulate interest ratings.
At the same time, the question arose whether or not issuing a national virtual currency would be able to gain major traction. Unlike Bitcoin, which cuts out the middleman entirely, a bank-issued and controlled virtual currency would keep people within the borders of the financial ecosystem. By using the same “weapons” as Bitcoin has to offer, central banks are hopeful they can take the positive elements of cryptocurrency and integrate it into a traditional financial setting.
Then again, there is a vast difference between using distributed ledgers to speed up transactions, and issuing a national virtual currency. While it is certainly true distributed ledgers can speed up transactions and settlements in general, integrating the technology to work with legacy systems is not an easy feat. A consultation paper released by Bank of England shows how embracing this technology would, in theory, allow banks to become an even more important part of global finance moving forward.
National Virtual Currencies Are No Real Threat To Bitcoin
Interestingly enough, this development would not be a threat to Bitcoin and other cryptocurrencies per se. If these findings are to be correct – which remains unknown until it is trialled in a live environment on a large scale – banks could use this technology to create inflationary virtual currency. Whereas Bitcoin is capped at a limit of 21 million coins, national virtual currencies would not share that trait.
It seems the Bank of England realized issuing such an inflationary virtual currency would endanger the banking system as a whole. Easier injections of “helicopter money” is the last thing that is needed right now. But that does not mean this idea has been canceled altogether, as banks may revisit the topic of a national virtual currency in the future. In fact, the Bank of Canada is still working on delivering such a project. In June of this year, the institution revealed a partnership with other Canadian banks to created CAD-Coin, a digital variant of the Canadian Dollar.