Digital currencies

A digital currency is an asset that only exists electronically. Digital currencies such as Bitcoin were designed to be used to make payments, but today many digital currencies are held as speculative assets by investors who hope their value will rise.

We are carrying out research into digital currencies and the technology that supports them.

Cryptoassets or ‘cryptocurrencies’

Cryptoassets combine new payments systems with new currencies that are not issued by a central bank. Examples of privately issued digital currencies include Bitcoin, LiteCoin, Ether (Ethereum) and XRP. 

Our Financial Policy Committee has assessed cryptoassets and concluded that they do not currently pose a risk to monetary or financial stability in the UK. However, cryptoassets do pose risks to investors and anyone buying cryptoassets should be prepared to lose all their money. 

We continue to monitor developments in this area. Most recently, the Bank of England has been part of the Cryptoasset Taskforce, working alongside HM Treasury and the Financial Conduct Authority to explore cryptoassets and the underlying technology, assess the associated risks and potential benefits, and set out the path forward with respect to regulation in the UK. The findings of the taskforce (published 29 October 2018) can be found here. More broadly, we have written about the economics of digital currencies and innovations in payment systems and the emergence of digital currencies.

Distributed ledger technology and blockchain

Bitcoin and other private digital currencies are underpinned by distributed ledger technology (also known as blockchain), which is an electronic ledger that records and verifies transactions made using the currency. Distributed ledger technology may be adapted for other uses across the financial system, with potential benefits, although there are challenges to overcome before it can be implemented in critical services such as the Bank of England’s high value payments service.

Our Fintech Hub monitors developments in distributed ledger technology.

Central bank-issued digital currencies

At the moment, we provide electronic accounts to banks and key financial institutions, but the public can only hold central bank money in physical form – as banknotes. If a central bank issued a digital currency then everyone (including businesses, households and financial institutions other than banks) could store value and make payments in electronic central bank money. While this may seem like a small change, it could have wide-ranging implications for monetary policy and financial stability.

We are not planning to create a central bank-issued digital currency. But we want to understand better the implications of a central bank issuing a digital currency. We first raised the possibility of a central bank-issued digital currency in our research agenda in 2015. And more recently, we released the research questions we are looking at. We welcome contributions on this topic from the wider central banking and academic community to help us shape our research in this field.

For more information, email digitalcurrenciesteam@bankofengland.co.uk

This page was last updated 05 March 2019
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