The bank has been trialling technology for digital transactions, using the same methods that underpin Bitcoins and other crypto-currencies.

The value of a bitcoin has risen sharply in the past year. It was worth about £720 in January, peaking at almost £15,000 in mid-December, before falling back dramatically to below £10,000 in the immediate run-up to Christmas. The volatility - and apparent popularity - of bitcoin will intensify pressure on the Bank of England to make a decision on an alternative digital currency of its own.

The currency would be pegged to sterling and underpinned by the bank, making it far less volatile than bitcoin.

Mark Carney, the Governor of the Bank of England, told the Treasury select committee before Christmas that he had held talks with other central banks about launching digital currency. "I have participated in discussions with the major central banks on this issue," he said, adding that those meetings would resume in January.

The bank carried out a successful test of a new digital payment method - called "distributed ledger" or "blockchain" technology - in the summer, that demonstrated the viability of making payments between two central banks. The technology is the same as is used in Bitcoins.

Mr Carney told the committee in his evidence: "The underlying technology is actually of a fair bit of interest. We are working with it at the Bank of England."

He said the "most interesting application that would be beneficial for financial stability and efficiency" would be using the "blockchain" technology for "settlements" between central banks.

But Philip Lowe, governor of the Reserve Bank of Australia recently described the bitcoin frenzy a "speculative mania".


Some senior figures inside the Bank appear to be pushing for a wider roll-out of crypto-currency.

Richard Sharp, a member of the Bank's financial policy committee and a former Goldman Sachs banker and Conservative Party donor, said there were "significant uncaptured efficiencies for consumers" if digital currency became widely available. He suggested the current "gold rush" for Bitcoins would speed up the industry.

In March 2016, it emerged that computer scientists at University College London had devised a crypto-currency known as the RSCoin with backing from the Bank of England.

Dr George Danezis, who is working on the RSCoin at University College London, suggested that digital currency would make it far easier for central banks to control the money supply. If a register of money was held centrally and digitally the central bank would know exactly how much money was in the economy at any given time.

The Bank of England's research unit is expected to report back within the next two years. Mr Carney would prefer a restriction on the use of digital currency - should the Bank agree it - to transactions between central banks.

The Telegraph London