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Home > Banknotes > Digital Currencies

Digital Currencies

Digital currencies are a purely electronic way of making payments anywhere in the world. Just like traditional money, digital currencies can be used to buy physical goods and services but could also be restricted to allow only certain purchases (eg in-app purchases in games). While there are a growing number of digital currencies (eg LiteCoin, Ethereum, DogeCoin, Ripple), the most well-known is Bitcoin. At present, only a very small percentage of the population use digital currencies and their price is known to fluctuate greatly. The Bank of England wrote two Quarterly Bulletin articles (see table below) which explain in more detail how digital currencies work and the economics behind them.
The Bank of England published the One Bank Research Agenda (OBRA) in February 2015. Theme 5 addressed central banks’ response to fundamental technological change and posed the question of whether central banks should issue digital currencies. Since then the Bank and others ranging from other central banks to private consortium have undertaken research work on central bank issued digital currency (CBDC). By CBDC, we mean a central bank granting wider, electronic, 24x7, national-currency-denominated and potentially interest-bearing access to its balance sheet. In July 2016 Michael Kumhof and John Barrdear published a staff working paper outlining the likely macroeconomic implications of the establishment of a CBDC. We are interested to continue to undertake research to investigate further the implications of CBDC. This is a multi-year research programme looking to assess the main economic, technology and regulatory impacts of introducing CBDC.
We will continue with the strategy laid out in the OBRA of engaging with the wider research community and to facilitate that process we have released a more detailed selection of research questions, and reflect the work that has previously been conducted internally on a topic, and so are more specific and targeted towards a particular output. In areas where internal work is currently at an earlier stage, the questions are more general and are intended to indicate the areas that require more investigation. We welcome continued engagement from the wider central banking and academic community to shape the research in this emerging field.
CBDC Multi-Year Research Programme
In his Mansion House Speech, the Governor of the Bank of England announced the launch of the Bank’s FinTech Accelerator which is working in partnership with FinTech firms on challenges that we, as a central bank, uniquely face. The Accelerator is working with new technology firms to help harness FinTech innovations for central banking. The Accelerator carried out a Distributed Ledger Technology Proof of Concept which will, amongst other things, help inform future work on the technology aspects of our CBDC research.
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Bank of England publications on Digital Currencies and Distributed Ledger Technology

Date Title​ Description​
​September 2016 Speech given by Chief Cashier Victoria Cleland ​Speech on FinTech given at the 2016 P2P Financial Systems International Workshop hosted by UCL.
​July 2016 Bank of England Digital Currencies research questions ​Detailed selection of research questions focused on the economic, technological and legal impact of a CBDC.
​July 2016 The macroeconomics of central bank digital currency ​Staff working paper outlining the likely macroeconomic implications of the establishment of CBDC.
​June 2016 Speech by Governor of the Bank of England to have been given at Mansion House ​Speech on enabling the FinTech transformation.
​March 2016 Speech given by Deputy Governor Ben Broadbent ​Speech focusing on CBDC which sets out major economics questions including who could have access to CBDC and whether CBDC could compete with cash or with bank deposits.
​February 2015 One Bank Research Agenda ​Page 31 summarises our research on CBDC and sets out general questions around whether there is any rationale for a central bank to issue a digital currency and what would be the economic, technological and regulatory challenges of doing so.
​September 2014 Quarterly Bulletin: Innovations in payment technologies and the emergence of digital currencies ​The distributed ledger underlying private digital currencies payment systems is a significant innovation and could result in transformation of the financial system.
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​September 2014 Quarterly Bulletin: The economics of digital currencies ​Private digital currencies do not currently pose a material risk to monetary or financial stability in the United Kingdom. The Bank continues to monitor developments in this area.
Watch the YouTube video