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Bank of England weighs merits of digital currency

25-07-2019-bank-of-england-photo-1600x1067-1569332760

Victoria Cleland, Chief Cashier at the Bank of England, has reiterated the Bank of England’s commitment to investigating central bank-issued digital currency (CBDC).

The Bank of England first brought up the possibility of a government-sponsored digital currency in a February 2015 research paper, that inspired UCL researchers to develop RSCoin, a prototype for a CBDC.

Cleland said a government-backed digital currency would supplement currency that circulates publically and liquidity that the Bank of England issues to commercial banks.

CBDC could be implemented in a number of different ways depending on its intended use. Cleland said that it is necessary to first analyse the possible economic impact of a CBDC.

A state-backed digital currency could be limited to exchanges between the central bank and commercial banks. But Cleland also described the possibility where: “CBDC is available to everybody, allowing businesses and households to hold balances in central bank money and to pay each other in real time with full and final settlement, in an electronic format.”

The benefits of businesses and households having direct access to central bank money might be counterbalanced by the possibility that the CBDC provides competition with commercial banks and undermines the financial system, said Cleland.

Nicolas Courtois, cryptographer and senior lecturer at University College London, said that it is possible to create a CBDC with existing technology: “There is a lot of sub-standard cryptography out there, and this includes Bitcoin, that needs regulation and government supervision. However, we already have, in theory, cryptography that is robust enough for a government-issued digital currency.”