The Treasury Committee of Parliament warned on Saturday that the launch of a digital pound must not be considered inevitable. The committee’s first report on creating a UK Central Bank Digital Currency (CBDC), stated that it is likely to be costly and that it is not yet clear whether the benefits of a CBDC outweigh the risks.
The report emphasized that while there are potential benefits in creating a digital pound, the extent of these benefits is unclear, and there are significant risks to consider, particularly in relation to privacy and financial stability. The report highlighted that the risks of implementing a CBDC include financial instability, privacy and data breaches, and accelerating the demise of physical cash.
The BoE and the Treasury must approach this analysis from a neutral perspective and should not view the launch of a digital pound as an inevitable consequence of investing in further detailed design work. The report also urged caution in considering the risks involved in the potential switching of money from bank deposits to digital pounds, which could trigger a bank run and increase the risk of bank failures.
The committee recommended that any primary legislation used to introduce a digital pound should ban the government or the BoE from using CBDC data for any purposes beyond those already permitted for law enforcement. They also stated that CBDC wallet providers must be robustly regulated to prevent misuse of users’ data.
Despite the common argument for CBDCs leading to greater financial inclusion, the committee expressed doubts about the potential benefit of a digital pound in the UK, where there already exists a well-functioning payments infrastructure. In addition, the report stated that the introduction of a digital pound may actually exacerbate the problem of financial exclusion for those who are unable or unwilling to use digital money.
The committee supports future research on a CBDC, but it cautioned that the BoE must control the costs and not get distracted from its primary functions of controlling inflation and maintaining financial stability.