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.
Bank of England publications on Digital Currencies and Distributed Ledger Technology