Bank Of England Abandons Its Own Cryptocurrency Launch (For Now)

In a statement to FT adviser, UK’s central bank abandoned its plans amid fears of “financial turbulence.” The bank was expected to release its cryptocurrency but has declined to do so, shortly after announcing that a research unit was handling the issue.

The launch of a cryptocurrency linked to the sterling pound was already underway, with a research team put in place to report in 12 months. However, the bank expressed fears that a digital currency would destabilize the economy.

What Is The Impact Of Digital Currency?

According to BoE, if the digital currency is introduced, the public will migrate from public bank system to BoE’s cryptocurrency for transactions. Mass movements will in turn cripple the bank system, with a reduction in cash to lend. Also, the Bank cited the “inelasticity” of digital currencies and hence poor control over interest rates.

The Banks' Chief, Mark Carney recently addressed members of parliament and assured them that bitcoin was not a financial stability issue. The statement came after a rapid rise in Bitcoin prices to $16,700, with current trades going over $20,000. However, the bank’s interests in launching a cryptocurrency might state otherwise.

Response to a digital currency would be massive withdrawals from traditional banks to invest in the new cryptocurrency. However, these banks are unable to pay off all their debtors, hence causing an enormous debt bubble.

The Conflict Between Traditional And Digital Currencies

In a typical scenario, if the BoE would like debt levels in the economy, it can increase interest rates to discourage borrowing and encourage people to save, hence stabilizing the economy. On the other hand, BoE can reduce the interest rates and encourage people to borrow, if the demand in the economy is too low.

The Bank’s control over traditional money cannot be spread to digital currencies at the moment. Introducing a cryptocurrency right now would mean that it has to be in supply for the entire economy, 24/7. With the blockchain technology currently open to the public, it will be challenging to control interest rates during increased or lowered demand in the marketplace.

If approved, the BoE issued cryptocurrency would allow the public to keep their digital currency with the central bank directly, hence eliminating the need for retail banks. Transactions would also happen almost instantaneously. Even with these benefits, the issue requires more research.

Elimination of retail banks would not only put the banks out of business, but other businesses affiliated with these banks. Imagining the rate of unemployment is undoubtedly catastrophic for any nation. These facts coupled with uncertainties over the control of interest rates would explain BoE’s measure.

However, the bank is still researching cryptocurrencies and blockchain technology. In a statement to the Treasury Select Committee in England, Dr. Mark Carney said that the Bank of England had carried out successful tests on blockchain technology. The bank had also participated in talks with major central banks on launching a digital currency.

BoE Abandons Its Own Cryptocurrenc Launch Conclusion

Digital currencies have taken the financial world by storm, and might only continue to thrive. Whether the Bank of England has temporarily stalled its plans to launch as digital currency or might not review the issue again remains a question of time.