Bitcoin and central banks? Cryptocurrency role "far from clear" but "pressing" says Bank of International Settlements

Lynsey Barber
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In the race to become cashless, central banks must look at cryptocurrencies (Source: Getty)

"The role of central banks in cryptocurrencies is "far from clear", the Bank of International Settlements has said, with risks such as security hard to quantify.

But the issue of whether a central bank should issue a digital alternative to cash is "pressing" in light of countries such as Sweden moving closer to becoming a cashless society.

The group representing central bankers has issued a paper in which it discusses the matter - and the risks of such a move which it deemed "hard to assess".

Read more: This group of leading companies are putting boats on the blockchain

BIS identifies two different types of central bank issued digital currency, retail, used by the public, and wholesale, used by financial institutions, highlighting the experiments in the latter by the likes of Bank of Canada and the Monetary Authority of Singapore.

In a redesign of the Bank of England's payments systems, use of a blockchain-based distributed ledger - the technology behind bitcoin and other cryptocurrencies - was dismissed by governor Mark Carney, who deemed it not yet mature enough. But it is still exploring the implications and last month issuing a working paper on how it could be used in securities settlements and has worked on proof of concepts involving blockchain.

"While it seems unlikely that bitcoin or its sisters will displace sovereign currencies, they have demonstrated the viability of the underlying blockchain or distributed ledger technology (DLT)," said BIS researchers.

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