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House of Lords asks BofE deputy governor: Time for 'Britcoin'?

15 July 2016  |  8458 views  |  0 london big ben

Once the preserve of anarcho-libertarians, digital currencies and their underlying distributed ledger technology (DLT) are making their way onto the agenda at the heart of the British establishment as the House of Lords prepares to hear from a top Bank of England official about the prospects for a 'Britcoin'.

Ben Broadbent, deputy governor of monetary policy at the BofE, will appear before the Lords economic affairs committee on Tuesday to "explore the prospect of a central bank digital currency and the effect it could have on commercial banks".

Earlier this year Broadbent floated the idea of using distributed ledger technology to enable individuals to hold digital currency accounts with the central bank. In a speech at the London School of Economics he suggested a BofE account could be simply 'e-cash' that can only be used for retail transfers, or it could be a proper account that pays interest.

However, he warned that such a move would have far-reaching consequences for the commercial sector. On one hand it would make banks safer by reducing the risk of a run if a shock causes people to try to close accounts. However, he warned, taking deposits away from banks could make it harder for them to make loans and make them more reliant on wholesale markets.

The deputy governor's colleague, Andy Haldane, has also been exploring the issue, floating the prospect of abolishing paper cash and replacing it with a state-backed digital currency as a way of facilitating negative interest rates.

Broadbent will flesh out his ideas to the committee and also give his views on predictions that blockchain technology could produce annual savings of $16 billion in administration costs for financial services firms and offer thoughts on what risks the technology may pose to financial security.

Meanwhile, Professor Michael Mainelli from Gresham College and Lord Spens from PWC will give evidence on DLT's possible applications for government services such as tax collection and benefits payments. Last week it emerged that the Department for Work and Pensions is trialing the use of distributed ledger technology and a mobile app to help welfare claimants track what they are spending their benefit payments on.

In a final session, DLT guru Blythe Masters and Simon Taylor from 11:FS will tell committee members about the risks associated with transitioning from the current settlement system to a blockchain-based system and further applications of the technology in financial services.

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