A Central Bank Digital Currency in United Kingdom
The House of Lords of the United Kingdom parliament within its role of making and shaping laws and checking and challenging the work of the government, released a report on Central Bank Digital Currencies (CBDC) with a final overall conclusion regarding its issuance in UK: While a retail CBDC (for the general public, not just for companies as would be the case with a wholesale CBDC) may provide some advantages, it could present significant challenges for financial stability and the protection of privacy. Many questions, that currently have not a clear answer, should be answered before the introduction of a UK CBDC and, in any case, the parliament should vote any final decision on this regard.
Report highlights:
- A UK CBDC in the future: Regarding the possibility of the introduction of a UK retail CBDC, the House of Lords recognizes that consumer payment preferences, technological developments and the choices of other countries may enhance the case for its introduction in the future.
- Risks that should be addressed before the introduction of a UK CBDC: The report points out the far-reaching consequences for households, businesses and the monetary system for decades to come depending on how it is designed. 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 or the creation of a centralised point of failure that would be a target for hostile cyberattacks.
- The overall conclusion of the House of Lords is that they have yet to hear a convincing case for why the UK needs a retail CBDC and raises various questions that should be addressed before the introduction of a UK CBDC:
- To what problem is a CBDC the answer?
- What is the precise threat posed by privately issued digital currencies, what it is that a CBDC could do to offset any threat, and what is the role of regulation?
- How can a CBDC be a competitive payments option without causing a level of banking sector disintermediation that would have negative consequences for credit allocation and financial stability?
- How can a CBDC ensure strong privacy safeguards while also meeting financial compliance rules? Which organizations will be able to access sensitive CBDC payments data, and for what purpose will that data be used?
- What are the main international and national security risks that arise from a CBDC, and how can these be managed? How can a CBDC be made secure against current and future threats without sacrificing useability?
- The parliament role: To answer these questions the House of Lords recommends the parliamentary scrutiny if the Government decides to proceed with the issuance of a CBDC, voting on any final decision.
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