Bank of England focuses on blockchain, not digital currency for now

Rage Commentary : A draft of a speech that was cancelled by Mark Carney, the Governor of the Bank of England, was leaked online. Carney said that the purpose of digital currency is to create a new financial system, while the purpose of distributed ledgers is to shorten settlement time and improve the security of the traditional financial ecosystem. Therefore, it will consider combining RTGS and distributed ledger technology, but will not adopt digital currency in the short term unless it is absolutely necessary. His concern that digital currency will bring too much freedom to investors and may cause bank runs reflects the recognition of central banks around the world.

Translation: Annie_Xu

In a transcript of a canceled speech posted online, Bank of England Governor Mark Carney said the central bank would issue a digital currency following ongoing proof-of-concept research on distributed ledgers.

The news comes as central banks around the world begin publicly testing distributed ledgers. Carney’s interpretation is that while Bitcoin and other cryptocurrencies may seek to create an entirely new financial system, distributed ledgers are designed to shorten settlement times and improve the security of the traditional financial ecosystem.

Mark Carney

Carney stressed that it is not possible to adopt these new tools in the short term and that banks issuing digital currencies are a last resort.

"What the central bank values ​​is the potential of distributed ledgers to improve market resilience, which means there are many system backups. Even if one part fails, the others can continue to operate normally. This eliminates the single point failure risk inherent in centralized systems."

But he also noted that the BoE intends to continue exploring the role of distributed ledgers in its internal infrastructure, including its real-time gross settlement system (RTGS).

“If distributed ledger technology can improve the efficiency of private payments and securities settlement, why not apply it to core payment systems?”

Importantly, this is not the first time the Bank of England has suggested that RTGS and distributed ledger technology could be integrated.

Deloitte said that the RTGS system currently used by the Bank of England was out of service for 9-10 hours in 2014, causing a lot of inconvenience and 51% of housing transactions that had to be completed that day were delayed for several hours.

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In this sub-article, Carney also pointed out that the central bank will set up its own Internet finance incubator, and the projects to be explored include distributed ledgers.

New ways of dealing with non-bank payment service providers will also be explored, which may provide new opportunities for blockchain companies with such business models.

Most importantly, he explains the relationship between distributed ledger technology and the existing system of central banks.

As for the issue of central bank-issued digital currencies, Carney believes it could "fundamentally reshape the banking industry in a significant way," but removing friction would also increase "liquidity risks."

Somewhat controversially, Carney believes that investors in this area have too much freedom, which shows the internal understanding of the problem among global central banks.

For example, if we assume that the stock market is about to crash, investors can quickly cash out their stocks, causing a run on the bank, even though the bank may not hold the cash.

Finally, he concluded his opinion that "the Bank of England will not issue digital currency in the short term."

Jo Cox

The speech was prepared for the mayor's banquet attended by bankers and businessmen, but Carney did not give a speech. Instead, he paid tribute to MP Jo Cox, who was murdered on Thursday.