Development Of A New Cryptocurrency Under Exploration By The Bank Of England
26 Jan 2020
Approx Reading time: 3 minutes
- A collaboration between 5 big central banks from around the world would explore the possible creation of a central bank digital currency (CBDC).
- This digital currency, if created, has the potential to make international settlements much easier.
- According to reports, central banks around the world have become increasingly interested in the creation of digital assets.
In an unexpected announcement, it has been revealed by the Bank of England
that it is exploring potential avenues in digital assets by collaborating with various other banking institutions including the Bank of Canada, European Central Bank, Sveriges Riksbank, Bank of Japan, and the Swiss National Bank. Particularly, these banks are looking into a central bank digital currency or CBDC.
This revelation has the potential to shake up the existing cryptocurrency market, which includes the massively popular Bitcoin and also upcoming currencies such as the Libra by Facebook, depending upon whether the new currency holds the support of the consortium called the Central Banking Group.
The abovementioned banks will discuss the possibility of the CBDC’s creation with the Bank for International Settlements. If successful, this could lead to the creation of the first global cryptocurrency that would have the backing of some of the strongest banks in the world.
According to the Bank of England, the collaboration between the banks is meant to assess the applicability of the digital currency into the local jurisdictions of each bank as well. This implies that the banks are aiming for a currency that has the potential to be implemented around the world as a globally centralized currency.
In the statement, the Bank of England specified that the banks would be looking at the currency’s potential uses, including its economic and functional uses, and also its technical design. The meeting between the banks would also deliberate on existing technologies, and also coordinate with forums and other relevant institutions such as the Financial Stability Board as well as the Committee on Payment and Market Infrastructures (CPMI) to come up with a practical way forward.
Experts believe that a centralized digital currency of this sort if created, could threaten the global dominance of the US dollar, an analysis that is further strengthened considering the Federal Reserve has not been involved in this banking consortium.
Some experts have not found the news to be surprising at all. According to Gavin Brown, who works at Manchester Metropolitan University as an Associate Professor of economics and finance, there had already been reports that approximately 70% of all central banks were already looking into potential CBDC programs.
Digitized currency may soon become central to monetary policy around the world, and this partnership by central banks around the world is further proof of this fact, according to Brown. Cumulatively, the abovementioned banks already hold more than $15 trillion in total assets, and a centralized digital currency among them is bound to have a strong impact around the world.
Brown also said that this partnership may even lead to the development of another currency called the Synthetic Hegemonic Currency
, or SHC, which came as part of the suggestions provided by Mark Carney in 2019. Regardless, it is becoming clearer that banks want a centralized medium of exchange, especially when it comes to settling international payments.