As originally reported by The Telegraph, the Bank of England may approve the creation of a state-sponsored cryptocurrency within the year. Just last year, the bank announced it had commissioned a theoretical currency, RS Coin, which could be used by central banks to settle payments.
Now, England’s central bank is upping the ante, looking to make its theoretical concept into a viable reality.
A research team vetted by the Bank has been studying the possibility of a central bank-issued cryptocurrency since 2015. In order to avert the volatility that has come to define Bitcoin, the cryptocurrency would be backed by the Bank of England and tethered to the pound sterling, Great Britain’s national currency. The Bank anticipates the research unit to report back sometime in 2018 with their findings.
Before the Christmas holiday, Dr. Mark Carney, Governor of the Bank of England, made the case for a central bank-backed cryptocurrency to England’s Treasury Select Committee. Defending the idea, he stated that “The underlying technology is actually of a fair bit of interest. We are working with it at the Bank of England.”
“I have participated in discussions with the major central banks on this issue,” he continued, saying that such talks would resume in the new year. He also revealed that, over the summer, the Bank successfully transacted with another central bank using blockchain technology.
According to Dr. Carney, there are clear positives to using blockchain technology for central banking practices. “You don’t end up with those financial stability risks; you get financial stability benefits. And you save huge amounts of computational energy intensity,” he argued.
The Governor also added that the Bank and its research unit are “disciplined” in their approach. “If we’re going to apply something to the core of the system, it’s going to need to meet five sigma quality rating.”
If the trials are successful enough for actual adoption, a cryptocurrency banking option could pave the way for near instantaneous payments for cars, land, houses, and other key assets.
Still, Dr. Carney was careful to address the limitations of a central bank-backed cryptocurrency. One such weak point, he believes, is solvency if the currency were introduced on a widespread, public scale.
Such adoption may “create a situation where you can have an instantaneous [bank] run.” Further, if users were to deposit all of their cryptocurrency into the Bank of England, it would need to reconcile the best way to diversify its investments with these assets. “So there are some fundamental problems if you push the retail design all the way down, unless you restrict the amount that people have.”
This revelation makes England the latest in an expanding list of countries that have either entertained or approved their own cryptocurrencies.
Recently, Israel announced its own plans for the digital shekel, the Israeli central bank’s solution to combating black market purchases that comprise just over 20% of Israel’s GDP.
Back in October, Vladimir Putin put Russia on the map as the first country to announce official plans for its own state-issued cryptocurrency, the digital ruble. Apparently, Russia is entertaining the cryptoruble as a means to circumvent international sanctions. Venezuela has announced their own cryptocurrency in a similar attempt to mitigate the impact of sanctions from the United States. Some months ago, President Nicolas Maduro unveiled the petro, a national cryptocurrency backed by Venezuelan oil reserves.
As England moves forward with its own plans, they will likely face criticism from the cryptocurrency community for introducing centralization to what was intended as a decentralized payment option. Industry leader Vitalki Buterin already expressed doubts earlier this year of central banks creating their cryptocurrencies. If the sterling-pegged currency is specific to the Bank of England, expect retail banks to raise cane, as well, as the move will likely threaten their costumer share of England’s banking populace.
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Last modified: May 20, 2020 9:14 PM UTC