The digital currency will be supported by decentralized distributed ledger mechanism and will be linked to Sterling.
In the past one year, the public interest for cryptocurrencies has exploded to unprecedented levels. Having seen the huge demand from retail investors, several institutional investors have been forced to participate in the cryptocurrency markets. However, the extremely volatile behavior of these unregulated digital assets has also forced the government bodies to establish rules in order to safeguard and protect investor’s money.
In a surprising move, a report by The Telegraph shows that Bank of England is planning to launch “its own Bitcoin-style digital currency” this year. The three hundred years old central bank has further planned to link this digital currency to sterling. As per the reports, Bank of England Governor, Mark Carney has held talks and discussion with other central banks about launching the digital currency.
The Bank of England is said to have established a research unit to study the probability of issuing a prototype cryptocurrency that can compete against rivals like Bitcoin and Ethereum. While describing the bank’s study on Bitcoin, Mr. Carney said that we are “pretty active in it but we’re also disciplined. If we’re going to apply something to the core of the system, it’s going to need to meet five sigma quality rating.”
The established research wing will submit its report about the study by the end of this year. As the new digital currency will remain under government scrutiny and regulation, it will be difficult to call it a cryptocurrency. Cryptocurrencies are inherently free from any control and regulations.
Reports show that the Bank of England has tested the use of blockchain technology to establish settlements between different central banks. This is one area where Mr. Carney has been optimistic and positive with the underlying mechanism of the decentralized distributed ledger.
While commenting on this, he stated; “The underlying technology is actually of a fair bit of interest. We are working with it at the Bank of England. Most interesting application that would be beneficial for financial stability and efficiency would be using the blockchain technology for ‘settlements’ between central banks. We are on the case.”
Commenting on the instantaneous movement of funds and settlement amongst central banks, Carney said “You (could) create a situation where you can have an instantaneous (bank) run. So as soon as there were any concern, people can switch in their account at the Bank of England.”
While looking not much worried about its retail potential, Mr. Carney told the British lawmakers, “You don’t end up with those financial stability risks, you get financial stability benefits. And you save huge amounts of computational energy intensity.”
If this project of a new state-owned digital currency turns out to be successful, this will open new frontiers for the British citizens to keep their digital money with the central bank. This could possibly mean an end of retail banking over the period of time and thus it is highly surprising that other central banks have also participated in this development.
It would be interesting to see how things move ahead as the year unfolds.