House of Lords committee says there is no ‘compelling case’ for digital currency in UK

A committee of peers has warned that the creation of an official UK digital currency could lead to a run on banks during an economic downturn, in a new report released on Thursday.

The Lords Economic Affairs Committee has said the introduction of a central bank digital currency (CBDC) could pose “significant risks” to the UK.

Bank of England officials are currently among those from 90 central banks around the world considering whether they should introduce their own digital currencies. The committee said that none of the witnesses who appeared before it were able to make a “convincing argument” as to why the UK needs a retail central bank digital currency.

Witnesses included Bank of England Governor Andrew Bailey and his deputy Sir John Cunliffe, Economic Secretary to the Treasury John Glen and senior Treasury official Charles Roxburgh, as well as other experts.

The report states, “While a CBDC may offer some benefits, it could present significant challenges for financial stability and privacy protection.”

The committee said: “The introduction of a CBDC in the UK would have far-reaching consequences for households, businesses and the monetary system for decades to come and could pose significant risks depending on how it is designed.

“These risks include state surveillance of people’s spending choices, financial instability as people convert bank deposits into CBDCs during times of economic stress, an increase in central bank power without sufficient oversight, and the creation of a centralized point of failure that would be a target for hostile nation states or criminal actors.”

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However, the peers said they recognize the importance of investigating the details of a digital currency and encouraged the Bank of England’s task force to keep it under review.

“We recognize that consumer payment preferences, technological developments and the choices of other countries may strengthen the case for a UK CBDC in the future,” he said.

Laith Khalaf, head of investment analytics at AJ Bell, pointed out that while there are risks associated with a digital currency, including a run on banks, it could also bring benefits, such as making it cheaper to buy digital currency. sending money abroad.

He said, “A digital currency could also facilitate micropayments, which could become more economical if digital currency succeeds in reducing transaction fees.

“This could be useful for low-value business transactions, opening up the option for customers to pay small amounts of money for a fleeting service, like reading a solitary news article instead of paying a monthly subscription.”

He continued: “A digital ledger could also allow money to be programmable, so that transactions occur if certain conditions are met.

“This could in theory include smart electricity meters automatically paying bills based on usage, automatically paying taxes at the time of a transaction, or taxpayers claiming immediate tax refunds on pension contributions.

“However, these potential benefits must be weighed against the risks.

“Particularly when you also consider that any radical financial innovation is likely to be a rallying cry for scam artists, who will flock to the scene of any confusion to embezzle funds wherever possible.”

DISCLAIMER: Nothing in this article should be read or understood as financial and/or investment advice. Readers should take their own financial advice from a suitably qualified independent financial adviser before making any investment decisions.

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