MPs urged the Bank of England and HM Treasury to thoroughly consider data privacy and financial stability issues before implementing a CBDC.

The UK Parliament’s Treasury Committee has issued a stark warning about the development of a retail central bank digital currency (CBDC) or “digital pound” and its potential harm to financial stability.

MPs urged the Bank of England and HM Treasury to thoroughly consider data privacy and financial stability issues before moving forward with implementing this new form of money.

The proposed retail digital pound is designed to be distinguished from wholesale CBDCs used for transactions between financial institutions and is envisioned as an electronic equivalent of fiat currency that both individuals and businesses can use to make payments.

Although both the Bank of England and the HM Treasury have acknowledged the need for a digital pound in the future, members of Parliament remain cautious.

Main focus

The main concerns focus on the risks that a retail CBDC could pose to U.K. financial stability. The committee highlighted concerns about heightened bank runs, and that a rapid shift of bank deposits to a digital pound could amplify the risk of bank failures during market turmoil.

Additionally, concerns have been raised that bank lending rates could rise by 0.8 percentage points or more as bank deposits gradually shift to digital pounds.

To mitigate these risks, the Committee recommends a smaller limit on retail digital pounds that can be held per person than the £10,000 to £20,000 range initially proposed.

Lawmakers also urged the government to “mitigate privacy concerns” and ensure that regulators and other entities cannot misuse personal and financial data generated by the introduction of a CBDC.

Lawmakers also stressed that the government should not be able to control how people spend their money.

Cost-Benefit Analysis

The committee recommended strict regulations and legislative protections for data access. It stressed the importance of ensuring that the introduction of a digital pound does not accelerate the decline of physical cash.

MPs said cash remains an important financial resource for many people in the UK and replacing it would increase financial exclusion.

The committee expressed concern about the significant costs of developing and introducing a CBDC. It urged the Bank of England and the Treasury to be transparent about these costs through annual reporting.

The Treasury Committee expressed support for the Bank of England’s ongoing efforts to design a potential retail CBDC. Nonetheless, it stressed that the project should not deviate from the institution’s primary objectives of controlling inflation and maintaining financial stability.

The lawmakers added that the introduction of a retail digital pound should not be seen as inevitable and detailed cost-benefit analysis must support its development. #英国  #CBDC