Yahoo Finance MPs caution Bank of England over digital pound
MPs have urged the Bank of England (BoE) and HM Treasury to address privacy and financial stability concerns over plans to introduce a 'digital pound'.
On Saturday, the UK's Treasury Committee released a report that urged the BoE and Treasury to "proceed with caution" when designing a central bank digital currency (CBDC) for retail use.
In the new report, the cross-party group of MPs said a retail digital pound could have benefits, including stimulating innovation and competition in payments, but questioned whether those positive impacts outweigh the risks and costs.
Read more: Britcoin: How digital pound could benefit the UK
“It must be clearly evidenced that a retail digital pound will provide benefits to the UK economy without increasing risks or leading to unmanageable costs before any decision is taken to introduce it into our financial system," Treasury Committee chair Harriett Baldwin said.
Concerns about a digital pound
The committee is concerned that a CBDC could worsen financial exclusion for those reliant on physical cash. "The digitisation of money can’t, in any way, leave those people behind," Baldwin added.
MPs warned that the introduction of a digital pound could make the UK economy more susceptible to bank runs if people are able to switch large amounts of bank deposits into digital pounds quickly in times of market turmoil, "increasing the risk of bank failures".
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It also raised concerns that a steady switching of some bank deposits into retail digital pounds could increase the interest rates on bank loans by 0.8% points or more.
MPs also raise privacy concerns related to a British retail CBDC. These concerns involve the possibility of misuse of personal data generated by the introduction of a retail digital pound, for example, to monitor or control how users spend their money.
"These concerns could be mitigated through robust regulation and legislated protections related to the ability of any future government to access people’s data," the Treasury Committee added.
Is a digital pound needed?
The committee chair then questioned the need for a digital pound.
“While we support the Bank of England's plan to continue working on the design of a potential retail digital pound, I would urge them to proceed with caution and maintain a genuinely open mind as to whether one is actually needed," Baldwin said.
However, earlier this year a consultation by the BoE and Treasury judged it is "likely that the digital pound will be needed in the future".
What is a retail digital pound?
The Bank of England and HM Treasury have set out a proposed design for a retail digital pound.
This is a digital form of money that is supplied directly from the BoE. The plan is to make the digital pound available for retail use by households and businesses throughout the UK.
Read more: What is the digital pound and when can you expect it
A retail CBDC differs from a wholesale version, which would be used for payments between commercial banks, for example to settle foreign exchange or securities transactions.
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