A new crypto-currency could be set up as early as 2018 and would transform the banking industry in Britain – possibly ending the need for high street banks.
It could even allow UK citizens to use the Bank of England to keep their money in digital form, rather than going via a retail bank.
This, in turn, could allow people to complete major sales and purchases, such as buying a car or a house, in a matter of seconds.
A research unit at the Bank of England was set up in February 2015 to look into the possibility of a sterling-linked crypto-currency and a spokesman told the Telegraph it could report back within the next 12 months.
The dramatic rise in value of bitcoin prompted a renewed interest in the potential for a digital currency linked to national central banks.
In January 2017 a bitcoin was worth just £720, before the value soared later in the year and peaked at almost £15,000 in mid-December.
While the value has dropped to just under £10,700, the volatile nature and increasing popularity of bitcoin has increased pressure on the Bank of England to introduce its own digital currency.
Because any digital currency introduced by the Bank would be linked to sterling, it would be far less volatile than bitcoin or other crypto-currencies.
Mark Carney, the Governor of the Bank of England told a Treasury Select Committee before Christmas that he had held talks with other central banks about launching digital currency, with meetings set to resume in January.
As the value of bitcoin began rising rapidly in November, Dr Carney insisted the shocking increase would not pose a threat to global financial stability.
Despite looking into the possibility of launching a central-bank issued cryptocurrency, Dr Carney warned there could be financial stability risks if such an approach were rolled out across the whole economy through a cryptocurrency intended for the general public.
Central banks already use electronic money but this is exchanged in a centralised fashion, across accounts at the central bank.
Cryptocurrencies allow parties to transact payments directly without a central intermediary, by using of blockchain technology that uses a shared ledger that verifies, records and settles transactions in a matter of minutes.
With no need for a central intermediary to facilitate and track transactions, consumers holding central bank-issued cryptocurrency could open accounts at any bank, including the central bank.
“You (could) create a situation where you can have an instantaneous (bank) run. So as soon as there were any concern, people can switch in their account at the Bank of England,” Carney said.
That could also cause the BoE to accumulate huge volumes of deposits that it would need to invest into different assets.
“There are many talents of the Bank of England, but I think credit allocation across the entire economy would not be a good idea,” he said. “So there are some fundamental problems if you push the retail design all the way down, unless you restrict the amount that people have.”
Re-disseminated by The Asian Banker from Express.co.uk