The Bank of England could issue its own digital currency in the future in the same way that it issues bank notes.
A research paper from the bank, One Bank Research Agenda, said bitcoin has proved it is possible to transfer value securely without a trust.
“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,” said the bank's research report.
“This raises the question of whether central banks should themselves make use of such technology to issue digital currencies.”
The Bank of England's report also outlined technological challenges that must be addressed.
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“As an example, payment and credit have seen innovations recently concerning ownership of digital currencies and alternative sources of finance,” it said. “Digital currencies, potentially combined with mobile technology, may reshape the mechanisms for making secure payments, allowing transactions to be made directly between participants.”
It added: “Technology has enabled the emergence of new business models, such as peer-to-peer lending and crowdfunding, which create alternative sources of finance for individuals and businesses.”
The bank was addressing this subject because, according to research, the UK has a particularly strong appetite for alternative finance models. Research by the University of Cambridge found that financial transactions through online lending platforms in Europe look set to become mainstream, reaching a value of €3bn in 2014, with €7bn predicted this year. The university found that the UK accounted for three-quarters (€2.34bn) of that 2014 figure.
The study, by the Centre for Alternative Finance at Cambridge University’s Judge Business School and professional services organisation EY, looked at peer-to-peer lending platforms and other online alternatives, such as equity-based crowdfunding.