The government will investigate ways that virtual and digital currencies such as Bitcoin can help drive innovation in the UK finance industry, chancellor George Osborne said today.

One of the steps the government will take is to start a programme of work that looks into how virtual and digital currencies could or should be regulated in Britain.

Talking at an Innovate Finance event in London's Canary Wharf, Osborne declared his intention to make Britain "the global centre of financial innovation", to the benefit of consumers and businesses.

Innovate Finance is a new industry organisation which is tasked with accelerating the UK's leading position in the global financial services sector. It will play a role in supporting young or established technology-led financial services innovators.

According to the chancellor, the government will also encourage the growth of alternative finance providers, which are a growing part of the FinTech sector, by introducing legislation that aims to help small and medium-sized businesses access alternative sources of finance if they are turned down for finance by their banks.

"Key to the government's long-term economic plan is cementing Britain's position as the centre of global finance," explained Osborne.

"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 businesses and consumers here and around the globe, and create the jobs and growth we all want to see in the future."

What is Bitcoin?

A growing number of online businesses are allowing customers to purchase items with Bitcoin, with technological and electronic goods retailer CeX recently becoming the first retailer in the UK to allow customers to receive virtual currency for products.

The Scottish second-hand exchange retailer replaced the pound with Bitcoin for a three-day trial in its Glasgow store, with the company's commercial director David Butler saying at the time: "In our store, the staff and customers live and breathe technology so it's only appropriate we looked at Bitcoin as a way for our customers to buy and sell electronic goods."

No large retailers in the UK currently accept Bitcoin and industry experts do not expect it to be widely adopted on the high street. There are a number of pubs across the country, however, that started accepting the payment in 2013 and some of the nation's largest high street retailers have said they are watching developments with interest. 

Commenting on today's announcement by Chancellor Osborne, David Baker, head of card payment innovations at The UK Cards Association, told Essential Retail: "It is right that the government looks at digital currencies as an alternative to cash in the future.

"I would agree right now it is unclear how Bitcoin would fit into the payments world, its volatility and connections to the darker economy may have tainted its reputation but I do see great potential in such platforms for digital asset transfers (which is what Bitcoin really is). Perhaps it is this that the government might want to consider: what are the business and social drivers that will allow us to move from the 'fiat' currency systems of today?"