Bank of England remains focused on central bank digital currencies

posted about 6 years ago
Despite widespread economic uncertainty in recent months, the Bank of England (BofE) indicated last week that it has not been distracted from its plan to enable a "fintech transformation" of the financial services industry.

The plan was first unveiled by BofE Governor Mark Carney in June, and in a speech last Thursday, chief cashier Victoria Cleland reiterated that devising a regulatory approach to fintech remains a priority for the bank. She also highlighted the bank's continued research around central bank digital currencies (CBDC).

A CBDC is a digital version of a national currency, which can theoretically be held in accounts owned by individuals or businesses at a central bank. Right now, only a small number of financial institutions are typically able to hold accounts at central banks, and everyone else must hold an account with one of those financial institutions.

Cleland outlined two significant areas related to CBDCs that the BofE is researching:

1. Economic implications of a CBDC — specifically the possible reduction of the availability of credit. The ability to hold money at a central bank would likely lead people to move their money out of existing deposit accounts and into central bank accounts.

2. Technical feasibility of using blockchain technology to create a CBDC. Blockchain technology seems the most likely candidate for such a task, given its capability for creating multiple immutable ledgers and instantly recording transactions. But it is still very much experimental, and Cleland questioned whether the technology is the best way to achieve the necessary scale a CBDC would require.
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