Recently, the Bank of England released a discussion paper on the issuance of a Central Bank Digital Currency. The bank insists that it has not yet decided on whether to issue a CBDC. To understand the risks, benefits, and practicality of issuing such a digital currency, the bank will engage stakeholders. As part of this engagement, it is inviting views from the members of the public.

Operate Along the Sterling

In the discussion paper, the BoE says that if it decided to issue a CBDC, it would not be a replacement to the fiat. Instead, it would operate alongside fiat currency. Additionally, its digital currency would be denominated in the British pound. As a result, one digital currency would be worth one CBDC. However, the bank acknowledges that such a digital currency could have additional features depending on the design they agree on eventually.

For the bank to introduce the CBDC, the bank would need to create a new payment infrastructure to support it. This would include the apps, the point-of-sale devices, and the database on which it would be based. In the paper, the central bank acknowledges that a CBDC might prove to be faster and more efficient than existing systems while offering new functionality with time.

How it would differ from Crypto

The discussion paper makes a distinction between a CBDC and existing cryptocurrencies. It notes that crypto coins such as Bitcoin are not considered money. Additionally, it notes that these crypto coins are usually volatile and are thus not a reliable store of value. It also points to stablecoins. It claims that these stablecoins might not offer stability and might come with other risks depending on the assets backing them and how they are stored. However, the CBDC issued by the BoE would not have any such risks since it would be issued by a central bank and perform all the functions of money.

No Need to Use the Distributed Ledger Technology 

The discussion paper claims that the CBDC would not necessarily run on distributed ledger technology. It claims there is no reason why their digital currency could not be issued using centralized technology. However, it acknowledges that the digital currency could also be built using some of the component innovations of the DLT. These elements include smart contracts, cryptography, decentralization, and permissioned access to the network.

Potential Impact on the Economy

The paper has a section dedicated to the potential impact of the CBDC. It acknowledges that the issuance of the CBDC could lead to disintermediation of the banking sector in the UK. The result is that the entire structure of the banking sector could change. It could change how the central bank achieves its objective of maintaining financial and monetary stability. Before it decides to issue a CBDC, the bank would have to weigh the risks and benefits of such a decision.

While the BoE has not made a final decision on issuing a CBDC, this paper shows that it is seriously considering the issue. If discussions go as planned, the UK could become the second top-ten economy in the world to issue a CBDC currency after China, which is likely to issue its currency this year.

Image Source: Pixabay 

Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the crypto currency they discuss. The information and content are subject to change without notice. Visionary Financial and its affiliates do not provide investment, tax, legal or accounting advice. This material has been prepared for informational purposes only and is the opinion of the author, and is not intended to provide, and should not be relied on for, investment, tax, legal, accounting advice. You should consult your own investment, tax, legal and accounting advisors before engaging in any transaction. All content published by Visionary Financial is not an endorsement whatsoever. Visionary Financial was not compensated to submit this article Please also visit our Privacy policy; disclaimer; and terms and conditions page for further information.

You May Also Like
Bitstamp Expands Client Protection With Crime Insurance

Bitstamp Expands Client Protection With Crime Insurance

Bitstamp, the European based cryptocurrency exchange, has expanded client protection by rolling…

Facebook’s Libra Association Members Declines to 23 as Four Other Giants Back Out

eBay, Visa and Mastercard, and Stripe are the latest names who have…
Donner and Reuschel want to adopt crypto custody due to the high demand for digital assets.

Private Bank In Germany With €9 Billion AUM To Offer Crypto Custody

Years ago, some of the greatest critics of cryptocurrency came from the…

SEC Takes Action On Blockchain Terminal And Its $30 Million ICO

Both the U.S. Securities and Exchange Commission (SEC) and the Attorney’s Office…
Where Do I Enter Crypto on TurboTax?

Where Do I Enter Crypto on TurboTax?

As the popularity of cryptocurrency continues to rise, more and more people…
Waves Association Will Distribute 1 Million WAVES in Grants

Waves Association Will Distribute 1 Million WAVES in Grants to Amplify Inter-Chain Development

Waves Association, a non-profit organization supporting the development of next-generation technologies on…

Bitcoin Regulation By Country: How Lawmakers Have Reacted To Mining In Cryptocurrency

Photo Credit To Denta Lent Via Flickr The Library of Congress came…

Is Bitcoin About To Enter A Major Industry Shift – Or Will Altcoins Replicate 2017 Bull Mode?

Photo Credit To Smith Kerry Via Flickr Follow Visionary Financial (VF) on Twitter…
Honduras Plans To Recognize Bitcoin As Legal Tender

Honduras Plans To Recognize Bitcoin As Legal Tender

The Central American Nation of Honduras could soon provide official recognition of…

Stellar ( XLM ) Technical Analysis Pans Out, Price Surges +39%

Stellar has been on watch the last week due to its technical…