Taking into account that bitcoin could revolutionize the existing methods of payment, the Bank of England’s “One Bank Research Agenda Discussion Paper” investigates the possibility of minting its own cryptocurrency. In fact, the discussion paper extends beyond the Bank of England’s traditional scope to decode how a new introduced monetary policy could capitalize on the cryptocurrency technology to add value in environmental and life changing developments.
Change of direction to the UK financial system?
In January, the British Bankers’ Association (BBA) strongly opposed to Chancellor George Osborne’s suggestion to make the UK the “global center of financial innovation” with the launch of bitcoin, warning that the expanded use of cryptocurrency could damage the UK financial system. Could this report signify the effort of a change of direction to the UK financial system? Actually, not yet.
According to the discussion paper, although the digital currency remains volatile, the blockchain technology is promising. Given that the entire mining process relies on high-end technology, which releases bitcoin into the market, the Bank of England considers that the distributed ledger technology may guarantee a certain level of security. However, a new system is required in order to control the digital currency before it is even minted.
British bankers still hesitant about bitcoin being minted
Additional research is required for the creation of a system that could support the introduction of cryptocurrency “without compromising a central bank’s ability to secure its system under attack.” Additionally, traditional banking models are put under the microscope to investigate whether minting could be a threat. So, at the end of the day, could bitcoin be minted by the central banks, including the Bank of England, while addressing technological and regulatory challenges in the launch of new policies to support the digital currency?
Huge challenges ahead
Although the cryptocurrency technology has facilitated the development of new business models, while creating alternative sources of funding for businesses, the risk of failing to incorporate it in the existing banking models is present. The Bank of England, should they decide to mint their own bitcoin, should overcome the huge challenge of persuading private entities that the benefits of innovation could trade off the risk undertaken. Still the question remains: will bitcoin ever be minted by the BOE given the resistance of the existing financial system? And should it be minted, will the UK financial system find the mechanisms to outsource management of the micropayments to private entities? It remains to be seen.