NEW YORK (InsideBitcoins) – Global central banks have, by and large, been mystified by bitcoin – what it means for the future of money supplies, it’s impact on the world’s economy and how all currencies will ultimately face the future. Some, including regional members of the US central bank, have studied cryptocurrencies and concluded, as in a recent report by the Boston Fed:
“The revolution in payments technology pioneered by Bitcoin helps to accelerate the development of better technologies for making payments and transfers cheaper, faster, and more secure. In principle, any of the functionality or services related to payment and transfer offered in the existing financial system should be, and likely will be, a candidate for reform if such reform can result in greater efficiency by using technology developed in the open-source distributed network framework that is at the foundation of Bitcoin.”
Now the Bank of England is adding its voice to the cryptocurrency chorus, even going so far as to ponder the possibilities of creating its own digital currency:
“The emergence of private digital currencies (such as Bitcoin) has shown that it is possible to transfer value securely without a trusted third party. While existing private digital currencies have economic flaws which make them volatile, the distributed ledger technology that their payment systems rely on may have considerable promise. This raises the question of whether central banks should themselves make use of such technology to issue digital currencies.”
“There are several different ways in which a central bank might make use of a digital currency. It could be used as a new way of undertaking interbank settlement, or it could be made available to a wider range of banks and NBFIs (non-bank financial institutions). In principle, it might also be made available to non-financial firms and individuals generally, as banknotes are today.
“Digital currencies, potentially combined with mobile technology, may reshape the mechanisms for making secure payments, allowing transactions to be made directly between participants. This has potentially profound implications for a financial system whose payments mechanism depends on bank deposits that need to be created through credit.”
And finally, the report asks how such a digital restructuring might impact the primary method of profit for the entire financial industry:
“If transactions balances could migrate to digital currency, how would banks compete? Would there be any implications for the availability of credit?”
The just-released “One Bank Research Agenda Discussion Paper” considers a number of issues impacting the financial system, and discusses the prospective role of central banks in addressing the matters.