The Bank of England has cited concerns that launching a state-backed Brit Coin cryptocurrency could harm the economy.
In a digital currency review, the UK’s central bank considered the possibility of issuing digital currency but pulled back from green lighting the move.
The main reason was the bank was worried investors and consumers would rush to buy any coin shored up by the British government, but that this could undermine retail and investment banking by triggering a rush to withdraw cash.
But another reason led to the decision not to go ahead, according to the bank’s governor Mark Carney.
That was he fears going digital would take away the tools the bank harnesses to control the economy, like raising or dropping interest rates to manipulate inflation. This control drips down to factories and shops and influences prices, wages and decisions about saving or spending.
Bank of England chief predicts Brit Coin possibility
Despite his doubts, Carney seems to be a cryptocurrency believer.
In a recent speech to economists in Sweden, he seemed to change his mind about Bitcoin and other digital currencies not acting like a traditional store of wealth, because few transactions take place where they are spent like money.
However, he told his audience that he expected to see far fewer central banks in the future as countries decide to issue their own cryptocurrencies – and he hinted that he could see Britain going this way eventually.
Carney has also extolled the virtues of the blockchain and is examining ways to integrate the technology into the Bank of England.
Concerns over global financial security
While Carney is mulling what to do about cryptocurrencies, the talking shop for central bankers warns launching state-backed coins could undermine global financial security.
The Bank of International Settlements, which was formed in 1930 and is owned by 63 central banks, says ‘jumping on the Bitcoin band wagon to destroy unofficial rivals could endanger the world’s financial stability.
“Any steps towards the launch [of central bank digital currencies] should be subject to careful and thorough consideration,” said Jacqueline Loh, who chairs the BIS markets committee.
The BIS general manager has also labelled cryptocurrency a “combination of a bubble, a Ponzi scheme and an environmental disaster.”