The prospect of a digital version of the British pound used for everyday transactions could cause financial instability and harm privacy, according to a new report by a House of Lords committee.
“The introduction of a UK CBDC (Central Bank Digital Currency) would have far-reaching consequences for households, businesses, and the monetary system for decades to come, and may pose significant risks depending on how it is designed,” the committee said in its report. The authors identified the main issue as the broad use of a CBDC by ordinary Brits.
“Risks include state surveillance of people’s spending choices, financial instability as people convert bank deposits to CBDC during periods of economic stress, an increase in central bank power without sufficient scrutiny, and the creation of a centralized point of failure that would be a target for hostile nation-state or criminal actors,” the UK lawmakers warned.
The report added, however, that a “wholesale CBDC” meant for the transfer of large sums between corporations could, in fact, be beneficial, making securities trading and settlements more efficient.
Overall, lawmakers concluded that there is currently no “convincing case” for why the UK needs a state digital currency, but urged the Bank of England to investigate the prospect further.
Britain’s central bank and finance ministry announced last November that they would continue consultations on the prospect of a CBDC introduction in 2022. However, they noted that, even if the motion was greenlighted, the e-pound wouldn’t be launched until at least 2025.
CBDC is a country’s fiat currency in the form of a digital asset. Unlike cryptocurrencies, which are decentralized, a CBDC is centralized, backed by a fiat currency and controlled by the country’s official monetary authority. So far, only two countries in the world use a CBDC: the Bahamas and Nigeria. A number of other nations have recently been stepping up efforts to launch a CBDC of their own to counter the growing use of cryptocurrencies and the falling use of cash.
The Bank of England did not comment on the report from the House of Lords. However, a spokesperson for the British Treasury told Reuters there is currently no firm decision on whether to introduce a British CBDC or not.
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