On Thursday British lawmakers warned, a digital pound which will be used by consumers is likely to affect the country’s financial stability, erode privacy and raise the cost of credit.
The digital pound would need greater appraisal before its widespread adoption.
In November 2021, in a statement the finance ministry and the central bank had said, they would hold a consultation in 2022 on whether to move ahead on a central bank digital currency (CBDC) that would be introduced after 2025 at the earliest.
Central banks across the globe have stepped up work on CBDCs to avoid the private sector dominating digital payments as cash use falls. However, an e-pound which will be used by households and business for everyday payments could see people move cash from commercial bank accounts to digital wallets, said the report by a committee in the House of Lords. This is likely to spark financial instability in times of economic stress and increase borrowing costs as a key source of lenders’ funding would dry up.
Further, a digital pound is also likely to impact privacy concerns since it would mean that the central bank would monitor spending.
“We were really concerned by a number of the risks that are posed by the introduction of a CBDC,” said Economic Affairs Committee Chair Michael Forsyth.
He went on to add, many benefits for the consumers could be “achieved by alternative means with fewer risks,” pointing to regulation as a better tool to ward off the threat of crypto issued by Big Tech firms.
On the contrary, a wholesale CBDC used to transfer large sums could make securities trading and settlement more efficient, said the report.
Ultimately, the British parliament will have the final say on any decision regarding the launch of the e-pound, said the report which called on lawmakers to vote on its governance.
A CBDC would have “far-reaching consequences for households, business and the monetary system,” said Forsyth. “That needs to be approved by parliament.”