Bank of England Publishes Paper on Central Bank Crypto
The Bank of England has published a working paper that explores the potential of state-backed cryptocurrencies. An institution that was once very critical of the crypto community now has a whole new take on the subject.
Everyone Is Thinking Alike
Several nations are looking at the possibility of issuing central bank digital currencies (CBDCs). Norway’s Norge Bank, for example, recently announced that it was exploring the technology behind crypto for this purpose, while Switzerland recently exclaimed it was studying blockchain benefits for the development of the e-franc. With its latest paper, the Bank of England is only the latest institution apaprentlye intrigued by the notion of a state-backed cryptocurrency to potentially offset the consequences of unbanked citizens and aid their economies.
The bank’s paper explores three potential models of central bank digital currencies, the narrowest one being what’s known as the Financial Institutions Access model. This system grants “restricted access to the CBDC by banks and non-banking financial institutions (NBFIs).” Monetary establishments are granted permission to interact directly with the Bank of England to buy and sell CBDC in exchange for securities.
The Opposite Plan
Furthermore, these establishments would act as banks, providing firms and households alike with CBDC assets. They cannot, however, extend lines of credit to said parties.
The broadest model – the Economy-Wide Access model – extends direct and indirect access to both individuals and non-financial entities. This program allows CBDC to act as money, and citizens can ultimately use it to pay for goods and services. Banks and NBFIs are the only organizations that can purchase CBDC directly. Any party that doesn’t fall into this category that wishes to purchase CBDC will be required to do so through platforms that allow the purchasing and selling of CBDC in exchange for deposits.
No More Issues with Cryptocurrency?
Interestingly, the Bank of England states that there are “no major risks” when it comes to purchasing, trading or selling cryptocurrencies. This goes directly against the words of Mark Carney, the bank’s governor, who last March referred to bitcoin as a “failure,” and noted that it raised a host of issues “around consumer and investors protection, market integrity, money laundering, terrorism funding, and the circumvention of capital controls and international sanctions.”
The Bank of England had previously published a working paper in April regarding a proof-of-concept outlining a digital distributed ledger network that “explored some of the key questions that could arise from ensuing privacy on a distributed ledger system.”
Will we see more countries explore CBDCs in the future? Post your comments below.
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