The arrival of electronic currencies could revolutionise the way Britons pay for goods and services, in much the same way as the internet shook up how we access information, the Bank of England has said. Cashless forms of payment like the cryptocurrency Bitcoin “potentially combined with mobile technology, may reshape the mechanisms for making secure payments”, the central bank said. While traditional currencies, including the pound, are backed by central banks, new alternatives have allowed individuals to exchange directly without any such third party.
The Bank could itself create digital currencies, making the new system available as it does with banknotes today. Research would be necessary to develop the technology “without compromising a central bank’s ability to control its currency and secure the system against systemic attack”, the Bank said. The idea of countries launching their own electronic currencies has gained pace in recent weeks, as Yanis Varoufakis became Greece’s newest finance minister.
The Greek-born economist has previously suggested that “the technology of Bitcoin, if suitably adapted, can be employed profitably in the eurozone as a weapon against deflation”. Nonetheless, the costs could be outweighed by a wave of payments innovation, if the Bank were to issue its own digital currency.
The Bank said: “Creating such a system would entail creating a protocol for value transfer over the internet, akin to what [Tim] Berners-Lee did for information.” Ken Tindell, an independent technologist, said that if the Bank launched a parallel digital pound alongside banknotes, this could reduce the cost of remitting currency abroad. This “is a very costly affair with the existing players” he said.
The Bank said that it could investigate whether moving to digital currencies could threaten traditional banking models, as consumers moved towards holding electronic money themselves, rather than depositing it with high street lenders. Mr Tindell said: “If the Bank were to create its own successful payments system then it would inevitably disrupt … existing inter-bank payments, but it would also affect companies like Western Union.”
The Bank’s comments were included with the launch of its One Bank Research Agenda, a new framework for conducting research. The Bank is looking at issues beyond its traditional scope, to see how monetary policy interacts with developments such as lengthening life spans and climate change.
Unveiling the new programme in London, Mark Carney, the Bank’s Governor, said: “Economies are complex, dynamic, and constantly evolving systems.” “Policymakers need research to help understand these phenomena and to craft our responses,” he added.
The research agenda has been launched in the aftermath of the 2012 Stockton Review, which recommended that the Bank embrace a “more assertive and experienced staff”, that might be “capable of breaking the momentum of the house view”. New technology has already “enabled the emergence of new business models, such as peer-to-peer lending and crowdfunding, which create alternative sources of finance for both individuals and businesses”, the Bank continued.
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