In the Bank of England’s quarterly bulletin, monetary analysts have written about digital currencies which they define to include Bitcoin, Litecoin and Ripple. Their assessment is that digital currencies have gained their popularity from being an asset class rather than a means of exchange. They suggest that currencies like Bitcoin should be seen more like gold than like money.
Figures from 2013 seem to back up their claims. The largest Bitcoin payment processor, BitPay, recorded sales of just over $100 million using Bitcoin is 2013 whilst Bitstamp, one of the largest Bitcoin exchanges, exchanged over $1.5 billion of Bitcoin and MtGox the largest exchange in 2013 traded over $3 billion of Bitcoin.
The analysts go on to explain that digital currencies “can be created out of nothing, albeit at pre-determined rates” meaning “the supply of digital currencies is typically limited”. This contrasts to other forms of electronic payment like PayPal where balances are funded by depositing pounds sterling thus the supply can increase and decrease as users deposit and withdraw their money.
It’s not the first time the Bank of England has commented on Bitcoin. In December a spokesman stated that:
The current levels of economic activity and payments involving bitcoin are too light to have a material impact on monetary or financial stability objectives in the short term.
The Bank of England is obviously keeping a close eye on Bitcoin but doesn’t yet feel that it has any significant impact on the British economy. The UK’s GDP in 2013 was almost $2.5 trillion, whereas an estimated $15 billion in Bitcoin was transacted worldwide in 2013.