This week the Bank of England issued a report suggesting, among other things, that it may not be a bad idea for it and other central banks to issue digital currencies (also named cryptocurrencies). A month ago the vice president of the Federal Reserve Bank of St. Louis, David Andolfatto, hit the news by giving a presentation about the desirability of a government digital currency. Altogether promising signs that governmental bodies are seriously studying the benefits of the Blockchain technology. The blockchain is the underlying technology for the Bitcoin. Some commercial banks are also investigating the benefits of the Blockchain. The views in the report of the Bank of Enland are strong contrast to the Bank of England’s previous dismissal of Bitcoin’s ability to function on a wider scale. The reported noted that:
“while existing private digital currencies have economic flaws which makes them volatile, the distributed ledger technology that their payment systems rely on may have considerable promise.”
Bitcoin was developed with the ideology in mind of a fully decentralized, P2P economy without state control. This raises serious challenges for a digital currency issued by a central bank. Andolfatto suggests the creation of a digital currency that is linked to the dollar. In this the stability of the fiat currency is linked to the speed and convenience of the Blockchain technology.