One of the notable things that has happened regarding both digital currencies and blockchain over the last two years is an increase in interest in both by major financial institutions, including several central banks. This interest has resulted in several working reports and ideas that would mean a significant change in within the industry in terms of public awareness and viability, and a new report from the Central Bank of England has furthered this. With the detailed look at central bank backed digital currencies, they show where the benefits could be.
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The Bank of England has spent much time researching the potential benefits of digital currencies and the underlying technology, blockchain, over the last couple of years. It has already published several reports on its views regarding the potential of digital currencies within the central bank framework and how that can be used to provide new and more efficient services to end users, and a new working paper published today has expanded further on these areas.
The new report focuses on the way a central bank issued digital currency could increase a country’s GDP, through reductions in real interest rates, distortionary tax rates and in transaction costs associated with those issues. They also note that the introduction of a central bank backed digital currency provides policymakers with new tools to control the quantity or price of such a currency to offset falls and slumps in the fiat system and negate some of the consequences of those occurrences.
They did note some possible problems with cryptocurrencies as well, in particular that transitioning to a different monetary and financial regime carries risk and could see resistance to any change because of that from the people most likely to benefit from it. However, while risk management is part of the duty of such a report, taken as a whole it remains remarkably positive about the digital currency industry itself, although for many in the industry the idea of central banks issuing their own cryptocurrency remains a controversial one.
What is clear from not just this report but for the several that have gone before, is that whether the cryptocurrency industry likes it or not, central banks and financial institutions are going to move into the digital domain sooner rather than later. This means that the industry needs to understand in what way this will impact their own initiatives, and how best to take advantage of what is certain to be increased awareness and interest in both digital currencies themselves and blockchain technology.