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Bitcoin, Litecoin… How could digital currencies revolutionise the way we pay?

Call for information on the benefits and risks of digital currencies launched.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Bitcoin and Litecoin keyrings

The government has today launched a Call for Information on the benefits and risks of digital currencies, as part of moves to support the growth of Britain’s emerging FinTech sector and ensure customers can take advantage of the latest innovations when they make payments.

Bitcoin is perhaps the best known example of a digital currency, but hundreds of others are currently in circulation, with a variety of different characteristics.

The government is calling for views from a wide range of sources including the public, FinTech firms, the financial services industry, regulators and law enforcement agencies on the potential digital currencies have for delivering new, helpful ways for customers to make payments and for encouraging innovation in our world leading financial sector.

What benefits could digital currencies bring?

Key to the government’s long term economic plan is cementing Britain’s position as the centre of global finance and opening up the country’s banking sector to more competition, benefiting consumers and businesses. Ensuring Britain remains at the forefront of financial innovation is central to both these aims.

The government considers these currencies have the potential to deliver real benefits to customers. Proponents say that they can make payments for users faster, more convenient and more secure, and mean lower fees for businesses than if they were accepting payment by traditional means.

But are there risks?

Concerns have been raised that users of digital currencies may not be protected in the same way as when using banks, and that the degree of anonymity and borderless features of this type of money could potentially be exploited for illicit or illegal activities. The government is therefore also asking for views on the potential risks posed by digital currencies, including possible risks to customers and financial stability.

Today’s Call for Information follows the Chancellor’s announcement in August 2014 that the government will start a programme of work looking into how digital currencies could or should be regulated in Britain. The government will use the views and evidence it receives as it considers measures to support innovation in this sector.

The Chancellor George Osborne said:

I want the UK to be the world leader in financial technology. That will bring jobs here and give new services to British customers.

Economic Secretary to the Treasury, Andrea Leadsom said:

A key part of our long term economic plan is to cement Britain’s position as the centre of global finance.

It’s only by harnessing innovations in finance, alongside our existing world class knowledge and skills in financial services, that we’ll ensure Britain’s financial sector continues to meet the diverse needs of customers here and around the globe, and create the jobs and growth we all want to see in the future.

So it is right that we are properly consider the potential benefits, as well as the risks, that digital currencies could bring to Britain’s economy, businesses and customers.

Digital currencies are a digital representation of value, and can be used as a medium of exchange. The technological innovation underpinning digital currencies allows payments to be made directly between payer and payee across the internet, without necessarily using traditional financial institutions or infrastructures.

Further information:

Image courtesy of BTC Keychain on Flickr, used under Creative Commons

Published 3 November 2014