UK MPs Urge the Bank of England to Address Data Privacy and Financial Stability Risks of Digital Pound
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Legislatures across the UK are urging the Bank of England to address the concerns around data privacy and financial stability before launching a digital pound.
The Treasury Committee believes that prevalent risks around a retail CBDC need to be addressed before causing financial instability.
UK MPs Raise Concerns Around a Digital Pound
One of the concerns raised by these legislatures is that the UK economy might be more susceptible to bank runs if people suddenly exchange large amounts of bank deposits for digital pounds. This instance will increase the risk of bank failures.
UK legislatures are also concerned about interest rates. They state that a steady switch of some bank deposits into retail digital pounds will raise the interest rates on bank loans. This interest rate could increase by at least 0.8 percentage points.
The committee members have also shared ways to mitigate the risks. One of these recommendations is to impose a smaller limit on the value of retail digital pounds that an individual can own.
During the consultation process, the Bank of England and Treasury discussed having a £10,000 to £20,000 limit on the retail digital pounds one can hold.
The UK MPs also call upon the government to address the issues raised around CBDC privacy. Concerns have been raised around the misuse of personal data using a robust regulatory framework and legislated safety measures.
Concerns around Costs
The Treasury Committee has also addressed the high costs of developing a retail digital pound from the next stage. The committee now urges the Bank of England and the Treasury to maintain transparency around these costs using annual reporting.
The Chair of the Treasury Committee, Harriet Baldwin, noted that the involved bodies must table evidence that a retail digital pound will benefit the UK economy without increasing risks or unmanageable costs.
“We must also keep a close eye on ensuring that any retail digital pound does not worsen financial exclusion for those reliant on physical cash. The digitization of money can’t, in any way, leave those people behind,” Baldwin said.
He further affirmed that the Treasury Committee supported the Bank of England’s plans around a retail digital pound. However, the bank must be cautious and consider all factors to determine whether this product is needed.
