Bank of England Cancels Plans for State-Owned Cryptocurrency
Last week, reports coming out of Britain showed a possibility of the country’s central bank - Bank of England - planning for a state-owned digital currency that would be linked to sterling. The major purpose of this plan was to make use of the blockchain and thereby bring in a faster and instant money transfer system. Moreover, it was also to reduce the influence of Bitcoin and Ethereum, within crypto investors,
However, this idea has now been dropped sighting reasons of a potential risk involved which can cause instability and disruption in the existing financial system. The Bank of England has confirmed to FTAdviser that there are “no current plans” to launch a sterling-linked cryptocurrency.
The central bank has established a research unit back in 2015 and it will still continue to have a further study on cryptocurrencies. One of the major reasons for the cancellation of the plans is that the arrival of digital currency would pose a threat to retail banking institutions. It believes that consumers would withdraw funds from commercial banks and put it in the form of digital currency with the Bank of England. The commercial banks will then have to face a huge shortage of cash thereby halting bank lending and causing major disruption in the economy.
Moreover, the central bank is worried that it won’t be able to able to maintain financial stability by using its interest rate policy. As per the central bank, the demand for traditional paper money is quite “elastic”, meaning it responds through price changes to interest rates charged on the money. The bank said that with the introduction of digital currency, it is unsure whether this elasticity would be sustained and could also undermine the bank’s ability to maintain economic stability using interest rates.
Governor of Bank of England - Mr. Mark Carney is quite positive on the use of blockchain technology for central bank practices. Mr. Carney then argued that “You don’t end up with those financial stability risks, you get financial stability benefits. And you save huge amounts of computational energy intensity.”
The Governor also said that the central bank and the research unit are completely “disciplined” on arriving at any decision in this matter. He said: “If we’re going to apply something to the core of the system, it’s going to need to meet five sigma quality rating.”
The Bank of England is not the first to propose such an idea of a state-owned cryptocurrency. Russia too is working on the possibility of a crypto-ruble. Similarly, Israel too holds plans for a crypto-shekel.