House of Lords Committee Sees 'No Convincing Case' for UK CBDC
"While a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy," the committee said.
There is "no convincing case" for the U.K. to have a central bank digital currency (CBDC), a House of Lords committee has concluded.
The Economic Affairs Committee of the U.K.'s upper house set up the enquiry in September to explore how a CBDC might affect the role of the Bank of England, monetary policy and the financial sector. The report published Thursday found that "while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy."
The Bank of England, in common with central banks of almost every other major economy across the world, is exploring a potential CBDC as a means of addressing the decline in the use of cash, expediting the implementation of monetary policy and future-proofing fiat currencies from the rise in use of privately issued digital currencies. It is set to begin a consultation alongside the Treasury later this year to explore design features, benefits and implications for users.
The House of Lords committee said it would be "inevitable" that consumers would transfer money from their bank accounts into CBDC wallets. Therefore safeguards would be required on the amount of CBDC individuals could hold to avoid financial instability being exacerbated during turbulent economic times by people replacing bank deposits with digital banknotes.
The Bank of England would also risk being drawn into "controversial debates on privacy" were it to add design features to the CBDC to counter its use for criminal activity.
"While there are design options that would provide some privacy safeguards, technical specifications alone may be insufficient to counter public concern over the risk of state surveillance," according to the committee.
The potential benefits of a CBDC are "overstated or achievable through less risky alternatives," Lord Forsyth of Drumlean, chair of the committee, said.
The Bank of England established two forums last year to discuss some of the issues with representatives from companies such as Paypal, Spotify, Mastercard and Visa among the members.
Should the bank proceed with the development of a digital pound, it has said the earliest that one could be rolled out is the second half of the decade.
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