Bank of England: Digital Currencies are “Harder Money” than a gold standard

In a presentation entitled "Old Money, New Money," Andy Haldane, Chief Economist and the Executive Director of Monetary Analysis and Statistics of the Bank of England and his team discussed digital currency and its implication for central banks and society.

Haldane said, "The least interesting thing about Bitcoin, and other distributed ledger systems, is that they are digital. Digital currencies are important for how they deploy the available technology in a new way."

He began by explaining the characteristics of medium of exchange and basics of bitcoin. He further elaborated on the five major eras in the history of economic change.

The report described digital currency in 4 main aspects:

• Distributed: greater resilience, no central control, a coordination problem
• Pseudonymous (and possibly anonymous)
• Push-only (no 'direct debits'): payments are final and cannot be imposed
• Individually cheap, but socially expensive (but this could be fixed)

Haldane stated that "Digital currencies are 'harder money' than a gold standard" because "sustained adoption [of bitcoin] would see ongoing deflation." Moreover, for existing digital currencies, a change in the pre-determined (path of future) supply requires the consent of a weighted majority of all users.

The report noted that 2 million UK adults are without bank accounts and 2.5 billion people in the world have no access to financial services. However, Haldane estimates that 80% of the world's population will have a smartphone within 5 years, and that in the near future the financial system could be supporting billions of new users, possibly double the current size.