Want to open a bank account directly with a central bank? Thanks to blockchain, Bank of England prepares for retail business
One of the most long established, conservative and imperial institutions that graces London’s elegant and historic financial services epicenter is indeed Britain’s central bank, the Bank of England. The Bank of England is the model on which most modern central banks have been based and was established in 1694. It is the second oldest central […]
One of the most long established, conservative and imperial institutions that graces London’s elegant and historic financial services epicenter is indeed Britain’s central bank, the Bank of England.
The Bank of England is the model on which most modern central banks have been based and was established in 1694. It is the second oldest central bank in the world, however the wood paneled chambers that are so steeped in institutional history are giving way to a completely innovative, technology focused Bank of England that could once again pave the way forward for other central banks, just as the same instition did 322 years ago at its inauguration.
Since following the Bank of England’s lead, many other central banks that issue sovereign currency across the world have never involved themselves in retail business, instead sticking rigidly to the business of liaising with central government, international lawmakers and issuing currency to banking institutions, however this is about to change as the Bank of England has today announced that it may look toward using blockchain technology to offer direct retail accounts to private individuals and companies.
The Bank of England has stated that blockchain, which is the main technical innovation of bitcoin, where it serves as the public ledger of all bitcoin transactions, could be the gateway into the retail space.
Ben Broadbent, Deputy Governor for Monetary Policy at Bank of England has voiced his perspective that the use of blockchain technology would make it easier to allow more companies or even individuals to hold accounts at the Bank.
Mr. Broadbent said “That might mean adding only a narrow set of counterparties – perhaps a wide range of non-bank financial companies. It might mean something more dramatic: in the limiting case, everyone including individuals would be able to hold such balances.”
“On the one hand, it would probably make banks safer. Currently, deposits are backed mainly by illiquid loans, assets that can’t be sold on open markets; if we all tried simultaneously to close our accounts, banks wouldn’t have the liquid resources to meet the demand. The central bank, by contrast, holds only liquid assets on its balance sheet. The central bank can’t run out of cash and therefore can’t suffer a “run”. On the other hand, taking deposits away from banks could impair their ability to make the loans in the first place. Banks would be more reliant on wholesale markets, a source of funding that didn’t prove particularly stable during the crisis, and could reduce their lending to the real economy as a result” – Ben Broadbent, Bank of England.
Mr Broadbent’s explanation continued in that “The distributed ledger works by encouraging users to verify for themselves, and others, blocks of transactions made over time. As everyone in the system has the right to do this, and everyone can see the results, there is no need for a trusted, centralised clearer” he said.
“This allows transfers to be verifiably recorded without the need for a trusted third party. It is potentially valuable when there is no such institution and when verifying such information on a multilateral basis is costly.”