RSCoin, a cryptocurrency controlled by the Bank of England for the purpose of strengthening the country’s economy and global trade, combines the benefits of distributed ledger technology with the control of traditional, centrally managed currencies, according to The Deal Room, a financial news website.
RSCoin was developed by University College of London researchers at the central bank’s suggestion.
While RSCoin uses cryptography – making it tamper-proof and resistant to counterfeiting – the digital ledger used by the newly-developed cryptocurrency is entirely held within the confines of the central bank, according to an earlier CCN.com report. RSCoin’s system will be accessible by a specific encryption key that will be in possession of the central bank. Some third-party collectives like commercial banks will be chosen by the central bank to partake in the central ledger.
The bank recognizes that digital currency transactions can be executed more efficiently than traditional currency transactions and with more visibility. A fundamental difference between RSCoin and other cryptocurrencies is that the bank believes its oversight divorces RSCoin from negative characteristics associated with other cryptocurrencies.
The Bank of England is one of a few central banks that are developing their own digital currencies, going a step further than those financial institutions that are utilizing blockchain technology to improve operating efficiencies. Another central bank expanding its digital currency is the People’s Bank of China.
In the current environment of negative or low-interest rates, digital currencies could provide monetary policy tools not previously available, noted Matthew Commons, CEO of Cambridge Blockchain LLC.
The Bank of England believes distributed ledger technology allows the payment system to work in a decentralized manner. In this respect, RSCoin is not a departure from conventional currencies that are electronically recorded.
The Bank of England hopes to gain wider acceptance for RSCoin. The currency can grow with the economy where other cryptocurrencies have limited circulation. The bank can immediately influence the money supply and address problems better than it can with traditional currency.
The bank will be able to grow the supply as the economy grows. The bank believes it can be used to generate more trade due to its efficiency.
The bank also believes the RSCoin could be better suited as a reserve currency for global trade than the U.S. dollar, the world’s predominant reserve currency. A digital currency is more flexible, has a lower cost, and better facilitates world trade (due to better speed and not being impacted by exchange rates).
There are drawbacks to digital currencies. There is the potential for “double spending” fraudulent transactions in which two parties believe they are both being paid the same money. The Bank of England’s plan is to curb this fraud with oversight by a transparent entity.
A University College London publication noted that despite decentralization, RSCoin provides a transparent transaction ledger, a distributed system for maintaining it, and an internationally visible monetary supply. It called the model a “hybrid” that could become a common currency.
Cryptocurrency advocates will object to the bank’s intrusion into the strict independence that characterizes other cryptocurrencies like bitcoin.
RSCoin’s long-term success, however, could be judged by the emergence of other central banks’ cryptocurrencies.
This hybrid system is no more disruptive than the U.S. decision to move off of the gold standard. The duality of flexibility and oversight offer the best of the new and the old.
RSCoin has used various computers with Amazon’s cloud computing system to test RSCoin. The testing provides an understanding of how the real world transactions will unfold. RSCoin is designed to last and is built for speed.
Featured image from Shutterstock.
Last modified: July 13, 2020 3:14 AM UTC