UK Lawmakers Urge Caution in Retail Digital Pound Development

By: Eva Baxter

UK legislators have raised concerns over the implementation of a retail central bank digital currency (CBDC), or 'digital pound', highlighting potential risks to financial stability. The Parliamentary Treasury Committee recently issued a stern warning and sought stringent regulations, cautioning the Bank of England and H.M. Treasury to thoroughly think through data privacy and financial stability issues before proceeding with this form of currency.

The committee recommended lower initial limits on the value of retail digital pounds as a preventive measure to mitigate potential risks of bank runs and financial market turmoil. Potential spikes in bank loan interest rates were also flagged, with a possible rise by 0.8 percentage points or more anticipated due to a shift from bank deposits to digital pounds.

Data privacy also surfaced as a paramount concern, with the Committee urging the government to alleviate concerns and ensure that personal and financial data cannot be misused by regulatory bodies. The legislators stress that the government should not have control over individuals' financial expenditure. They recommend legislative protections for data access and emphasize preserving physical cash and its utility in financial ecosystems.

The Committee underscored that while they support the Bank of England's ongoing attempts to develop a potential retail CBDC, the project should not overshadow the bank's main objectives, such as controlling inflation and maintaining financial stability. They advised approaching the retail digital pound's implementation as not inevitable, insisting on a detailed cost-benefit analysis.