UK legislators are cautious about introducing retail CBDCs due to privacy and financial stability concerns.

Concerns over privacy and financial stability cause UK lawmakers to tread carefully in introducing retail CBDCs.

Author: Assad Jafri, cryptoslate; Translation: 0xjs@LianGuai

The UK Parliamentary Treasury Committee has issued a stern warning about the development of retail Central Bank Digital Currencies (CBDCs) or “digital pounds” and their potential threats to financial stability.

Lawmakers are urging the Bank of England and H.M. Treasury to thoroughly consider data privacy and financial stability concerns before advancing with the implementation of this new form of currency.

The proposed retail digital pound is intended to differentiate from wholesale CBDCs used for institutional transactions and is envisioned as an electronic equivalent of fiat currency that individuals and businesses can use for payment purposes.

Although both the Bank of England and H.M. Treasury acknowledge the need for a digital pound in the future, parliamentary members remain cautious.

Main Concerns

The main concern is the potential risks retail CBDCs may pose to UK financial stability. The committee emphasizes concerns about bank runs, as the rapid transfer of funds from bank deposits to digital pounds during market turmoil could heighten the risk of bank failures.

In addition, as bank deposits gradually shift towards digital pounds, there are concerns that bank loan rates may increase by 0.8 percentage points or more.

To mitigate these risks, the committee recommends implementing smaller holding limits for individual retail digital pounds compared to the initially proposed range of £10,000 to £20,000.

Lawmakers also urge the government to “alleviate concerns over privacy” and ensure that regulatory agencies and other entities do not abuse personal and financial data generated through the introduction of CBDC.

They also emphasize that the government should not control how people spend their money.

Cost-Benefit Analysis

The committee recommends strict regulation and legislative protection for data access. It highlights the need to ensure that the introduction of digital pounds does not accelerate the decline in the importance of physical cash.

According to lawmakers, cash still remains a crucial financial resource for many people in the UK, and replacing it could exacerbate financial exclusion.

The committee expresses concerns about the significant costs associated with capacity-based development. It urges the Bank of England and the Treasury to maintain transparency on these costs through annual reports.

The Treasury Committee states that it supports the Bank of England’s efforts to develop potential retail CBDCs. However, it emphasizes that the project should not undermine the institution’s key objectives of controlling inflation and maintaining financial stability.

Lawmakers add that the introduction of a retail digital pound should not be seen as inevitable and must be supported by detailed cost-benefit analysis.

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