The Bank of England (BoE) has decided to drop the idea of launching its own digital currency, citing concerns about the possible instability and disruption such a venture might cause in the existing financial system.
According to FTAdviser, the BoE confirmed that it has “no current plans” of launching a digital currency linked to the pound sterling.
It was earlier reported that the United Kingdom’s central bank was considering launching its own crypto-sterling, to compete with the growing popularity of Bitcoin. Bitcoin is viewed with suspicion by governments and central banks worldwide, owing to its decentralized and unregulated nature.
The BoE had set up a research committee in February 2015, tasked with undertaking a study on a possible virtual currency issued by the bank which would be tied to the GBP, and the impact it would have on the existing system.
However, the BoE has now confirmed that while it plans to continue researching the subject of cryptocurrencies, a crypto-sterling is not on the cards.
One reason behind the cancellation is that a crypto version of the sterling might have a potentially negative impact on traditional banks. The public might choose to abandon paper money altogether and stop using commercial bank accounts. Instead, they might opt to open up accounts with the BoE, and start using digital money for transactions and the purchase of goods and services.
A mass-shift to the BoE’s digital currency would also cause a shortage of cash among commercial banks, halting bank lending and causing disruption in the economy.
Another reason why a crypto version of the pound sterling might lead to financial instability is that unlike paper money, the demand for which is “elastic” (since it is managed by increasing or decreasing interest rates), a crypto-sterling may not be easily controllable.
The BoE is not the first to consider the possibility of a central bank-issued cryptocurrency. Russia is reportedly working on a Crypto-Ruble, Singapore has plans to launch a central bank-issued cryptocurrency version of the Singaporean dollar, and the finance ministry of Israel has claimed that the release of a crypto-shekel is under consideration.