Bank of England: Digital Currencies Could Revolutionise Payments

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A combination of digital currencies and mobile technology may reshape the payments landscape, according to a new Bank of England research report.

The One Bank Research Agenda investigates issues beyond the UK central bank's traditional scope to decipher how monetary policy interacts with developments such as climate change and increasing life spans.

Mark Carney, the Bank’s Governor, summarised today's launch of the Agenda saying:

"Economies are complex, dynamic and constantly evolving systems that are underpinned by social interactions and behavioural change, shaped by fundamental forces like technology and globalisation and supported – or at times disrupted – by finance."

The views offered on bitcoin in the agenda mark a stark contrast to the Bank of England's previous dismissal of bitcoin's ability to function on a wider scale.

The bitcoin agenda

The report noted that "while existing private digital currencies have economic flaws which make them volatile, the distributed ledger technology that their payment systems rely on may have considerable promise".

With this in mind, the Bank of England raised the question of whether central banks should make use of such technology to issue digital currencies. In doing so, the financial authority also addressed the economic, technological and regulatory challenges it would face if it did so.

The report outlined the costs and benefits of creating a new form of central bank money and making it widely accessible. The research also looked into how this development may impact existing payment and settlement systems, while analysing the implications for government-backed deposit insurance if central bank money was made widely accessible to both households and businesses.

The report questioned whether digital currencies issued by the central bank should be remunerated and whether this should be linked to the country's official interest rate.

Other aspects of the research included the implications for the availability of credit, the costs and benefits of different central banks using a common platform for issuing digital currencies, and how could institutions offering access to central bank issued digital currencies be regulated.

Social media response

The release of the agenda generated a significant amount of debate on Twitter, after George Osborne, the Chancellor, commented on the release, speaking about the positive ramifications for the Fintech industry.

Good that @bankofengland looking into digital currencies – need to ensure UK customers benefit from new tech and #Fintech firms flourish

— George Osborne (@George_Osborne) February 25, 2015

The publication comes at a time when the possibility of countries launching their own electronic currencies has gained attention in recent weeks.

Yanis Varoufakis, Greece's newest finance minister, previously commented that "the technology of bitcoin, if suitably adapted, can be employed profitably in the eurozone as a weapon against deflation".