UK Lawmakers Express Concerns Over Retail CBDC
The development of a retail central bank digital currency (CBDC), also known as a “digital pound,” has raised concerns among UK lawmakers regarding privacy and financial stability. The UK Parliamentary Treasury Committee has issued a stern warning about the potential hazards associated with implementing this new form of currency.
Privacy and Financial Stability Issues
The Bank of England and H.M. Treasury have been urged to thoroughly consider data privacy and financial stability issues before moving forward with the retail CBDC. Lawmakers are cautious about the risks it may pose to the country’s financial stability. The Committee highlighted concerns about increased bank runs, where rapid transfers from bank deposits to digital pounds during market turmoil could amplify the risk of bank failures. There are also worries about potential interest rate hikes on bank loans due to a shift from bank deposits to digital pounds.
Addressing Concerns
To mitigate these risks, the Committee suggested implementing a smaller holding limit on retail digital pounds per individual than the initially proposed range. They also emphasized the need to alleviate privacy concerns and ensure that personal and financial data generated by the CBDC introduction is not misused.
Cost-Benefit Analysis and Transparency
The Committee recommended the establishment of stringent regulations and legislated protections for data access. They stressed the importance of maintaining the availability of physical cash to avoid exacerbating financial exclusion.
Concerns about Costs
The Committee raised concerns about the significant cost of developing and introducing a CBDC. They urged the Bank of England and Treasury to maintain transparency by providing annual reports on these costs.
Primary Objectives of the Bank of England
The Treasury Committee supports the Bank of England’s efforts to design a potential retail CBDC but emphasized that it should not detract from the institution’s primary objectives of controlling inflation and maintaining financial stability.
Conclusion
The introduction of a retail digital pound should not be seen as inevitable, and a detailed cost-benefit analysis must back its development, according to the lawmakers.
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