No ‘convincing case’ for CBDC, says House of Lords committeewritten by Bella Palmer
A digital pound could also harm privacy by allowing the central bank to monitor spending, according to the report by a committee in the House of Lords
A digital pound used by consumers could harm financial stability, raise the cost of credit and erode privacy, though a version for wholesale use in the financial sector demands greater appraisal, British lawmakers said on Thursday.
Britain's central bank and finance ministry said in November they would hold a consultation this year on whether to move forward on a central bank digital currency (CBDC) that would be introduced after 2025 at the earliest.
Central banks across the world have stepped up work on CBDCs to avoid the private sector dominating digital payments as cash use falls. The prospect of widely-used cryptocurrencies issued by Big Tech has also galvanized such efforts.
But an e-pound used by households and business for everyday payments could see people move cash from commercial bank accounts to digital wallets, said the report by a committee in the House of Lords, parliament's unelected upper chamber.
That could spark financial instability in times of economic stress and increase borrowing costs as a key source of lenders' funding would dry up, it said.
A digital pound could also harm privacy, the report added, by allowing the central bank to monitor spending.
The committee said that none of the witnesses who came before it were able to make a ‘convincing case’ for why the UK needs a retail central bank digital currency.
The witnesses included Bank of England (BoE) Governor Andrew Bailey and his deputy Sir John Cunliffe, economic secretary to the Treasury John Glen and senior Treasury official Charles Roxburgh, and other experts.
We were really concerned by a number of the risks that are posed by the introduction of a CBDC, Economic Affairs Committee Chair Michael Forsyth told Reuters.
Many benefits for the consumers could be achieved by alternative means with fewer risks, Forsyth said, pointing to regulation as a better tool to ward off the threat of crypto issued by Big Tech firms.
However, a wholesale CBDC used to transfer large sums could make securities trading and settlement more efficient, the report said. Britain's central bank and finance ministry should consult on its advantages over the expansion of the existing settlements system.
We recognise that consumer payment preferences, technological developments and the choices of other countries may enhance the case for a UK CBDC in the future, it said.
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