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Bank of England to Take Closer Look at Bitcoin

By Tristan Hugo-Webb
September 15, 2014
in Analysts Coverage
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In its quarterly economic review, the Central Bank ofEngland has examined more in-depth the opportunities and disadvantages posed bydigital currencies like Bitcoin. According to the Bank of England, digitalcurrencies do not currently pose a material risk to monetary or financialstability given that their use is so limited (according to the Bank of Englandonly 20,000 people hold bitcoins and only 300 transactions may be conducted perday).

Writing in the quarterly economic review, the Bank ofEngland commented, “At a microeconomic level, a key attraction of some digitalcurrency schemes at present is their low transaction fees. But the incentivesembedded in the current design of digital currencies mean that these fees mayeventually need to rise significantly, as usage grows.”

While the Bank of England discounts the threat of digitalcurrencies like Bitcoin in the immediate future, the Central Bank argues thatthe prospect of digital currencies’ status as money and the distributed ledgertechnology have potential to develop over time into something meaningful anduseful for the mainstream payments industry.

With governments like Canada and Ecuador already looking atdigital currencies (although Canada has since looked to sell off its digitalcurrency, MintChip), there clearly is interest in how digital currencies couldimpact the electronic payments mainstream due to lower costs and virtuallyuniversal acceptance, with only an internet connection required. Although,broad government use of digital currencies is a number of years away (if ever),the simple fact that Central Banks are delegating resources to their researchhighlights their potential.

For access to the Bank of England’s quarterly economic review,see the PaymentsJournal library HERE


Overview by Tristan Hugo-Webb, Associate Director, International Advisory Service for Mercator Advisory Group

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