Bank of England publishes paper on state-backed crypto

The Bank of England has published a staff working paper looking at the risks and implications of central bank cryptocurrencies – dubbed CBDCs.

CBDCs are split into three categories in the paper – the Financial Institutions Access model, which gives access to banks and non-bank financial institutions (NBFIs); the Economy Wide Access model, also allowing households and firms with access to CBDC; and the Financial Institutions Plus CBDC-Backed Narrow Bank Access, with limited CBDC access to banks and NBFIs.

The paper has been created for use as background material for research in the cryptocurrency field, relating to issues such as economics, financial stability and technology.

Responding on written evidence provided by the BoE to the Treasury Select Committee today, Kevin Murcko, CEO of cryptocurrency exchange CoinMetro, said: “While the Bank of England is right to point out the flaws in the current cryptocurrency economy – issues of capacity constraint, speed, and so on – the statement fails to look beyond the here and now. It’s easy to forget that we’re still in the early days of cryptocurrency.

“The issues that are holding back cryptocurrency at the moment aren’t permanent by any means. Networks will get faster, fees will become lower, capacity will expand. It’s only a matter of time.”

While the paper does not hint at the widespread use of CBDCs across the UK, it does indicate a changing mindset within official organisations and the government.

“While it’s true that, at the present moment, UK financial institutions have negligible exposure to cryptocurrency, the future looks very different,” Murcko continued. “Client demand for cryptocurrency capabilities are growing rapidly, and that’s something commercial banks will have to respond to. As a recent Reuters survey suggested, one in five financial institutions are considering cryptocurrency trading.”