Bank of England may issue its own ‘bitcoin’

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by Robert Mendick, Australian Financial Review:

The Bank of England could approve its own bitcoin-style digital currency within the next year, The Sunday Telegraph can disclose.

A research unit set up by the Bank is investigating the possible introduction of a crypto-currency linked to sterling.

If approved, a virtual currency issued by the bank would pave the way for a revolutionary shake-up of high street banking.

A Bank of England-issued digital currency could allow British citizens to keep their money – in digital form – with the central bank itself, dispensing with the need for a retail bank. Big-ticket transactions, such as buying a house, could happen in nanoseconds.

The research unit was set up in February 2015 and, according to a Bank of England spokesman, could report back within the next 12 months.

The bank has been trialling technology for digital transactions, using the same methods that underpin Bitcoins and other crypto-currencies.

The value of a bitcoin has risen sharply in the past year. It was worth about £720 in January, peaking at almost £15,000 in mid-December, before falling back dramatically to below £10,000 in the immediate run-up to Christmas. The volatility – and apparent popularity – of bitcoin will intensify pressure on the Bank of England to make a decision on an alternative digital currency of its own.

The currency would be pegged to sterling and underpinned by the bank, making it far less volatile than bitcoin.

Mark Carney, the Governor of the Bank of England, told the Treasury select committee before Christmas that he had held talks with other central banks about launching digital currency. “I have participated in discussions with the major central banks on this issue,” he said, adding that those meetings would resume in January.

The bank carried out a successful test of a new digital payment method – called “distributed ledger” or “blockchain” technology – in the summer, that demonstrated the viability of making payments between two central banks. The technology is the same as is used in Bitcoins.

Mr Carney told the committee in his evidence: “The underlying technology is actually of a fair bit of interest. We are working with it at the Bank of England.”

He said the “most interesting application that would be beneficial for financial stability and efficiency” would be using the “blockchain” technology for “settlements” between central banks.

Some senior figures inside the Bank appear to be pushing for a wider roll-out of crypto-currency.

Richard Sharp, a member of the Bank’s financial policy committee and a former Goldman Sachs banker and Conservative Party donor, said there were “significant uncaptured efficiencies for consumers” if digital currency became widely available. He suggested the current “gold rush” for Bitcoins would speed up the industry.

In March 2016, it emerged that computer scientists at University College London had devised a crypto-currency known as the RSCoin with backing from the Bank of England.

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