The world of digital currency has come a long way since the genesis block. With proposals like that from David Andolfatto of the St. Louis Federal Reserve to develop a government-backed cryptocurrency, or Fedcoin, the states themselves are now dipping their toes in the water of bits and blocks.
Not wanting to be left behind, the Bank of England touched upon the same potentiality in it's One Bank Research Agenda, as part of a proposal to transform the way the bank conducts research.
Will goverments move too slowly to capitalize on the growth of Bitcoin and other digital currencies? The main advantage to a government-backed coin would be a perception of safety and peg to the local currency. As digital currencies, e.g., Bitcoin, become less volatile over time and assume a ubiquitous role within the socio-financial framework, these comparative advantages decline. Time will tell if the biggest banks of all will determine the future of digital currency or simply watch as the global financial system adapts itself.
The BofE is pondering the implications of issuing its own digital currency. The potential of a central bank-backed digital currency is touched on with the publication of the BofE's 'One Bank Research Agenda' - a wide-ranging framework to transform the way research is done at the Bank. "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," states the Bank. "This raises the question of whether central banks should themselves make use of such technology to issue digital-currencies." The BofE is not alone in its thinking. Earlier this month a senior researcher at the St Louis Fed floated the idea of a government-backed 'Fedcoin' that uses a bitcoin-style protocol but the US dollar as the monetary object, combining the best of cryptocurrencies and cash.