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Lords Committee pours cold water on UK CBDC

Lords Committee pours cold water on UK CBDC

A Committee of peers in the House of Lords has concluded that there is no convincing case for the creation of a central bank digital currency in the UK.

The Economic Affairs Committee found that while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy.

The Bank of England and HM Treasury have been actively pursuing the case for a CBDC, dubbed Britcoin, due to the declining use of cash and the threats to monetary sovereignty posed by private digital currencies.

The upper chamber of the House of Commons commenced its inquiry into the issue in November, taking evidence from the Bank of England and senior banking officials.

Lord Forsyth of Drumlean, Committe Chair, comments: “We took evidence from a variety of witnesses and none of them were able to give us a compelling reason for why the UK needed a central bank digital currency. The concept seems to present a lot of risk for very little reward. We concluded that the idea was a solution in search of a problem.”

In publishing its report, the Committee expresses a view that the creation of a retail CBDC could lead to a run on bank deposits in times of economic stress and could also draw the Bank of England into controversial debates on privacy and state surveillance.

Security risks, both from the pilfering of individual accounts and hostile attacks on the centralised CBDC ledger, were also highlighted.

States Forsyth: “The introduction of a UK central bank digital currency would have far-reaching consequences for households, businesses, and the monetary system. We found the potential benefits of a digital pound, as set out by the Bank of England, to be overstated or achievable through less risky alternatives."

Comments: (2)

Jeremy Light
Jeremy Light - pingNpay - London 13 January, 2022, 10:192 likes 2 likes

CBDCs pose financial, economic and human rights risks to society if implemented incorrectly.

However, as a base layer in a monetary architecture  CBDC as collateral for a nation’s payment system and for private programmable money could drive innovation.

The challenge is to design and implement a CBDC so that it can never evolve out of the base layer and be abused by governments to print money or control society.

Watch out for my blog on CBDC risks, here and on Linkedin coming shortly.   

A Finextra member
A Finextra member 13 January, 2022, 12:311 like 1 like

The House of Lords seem to have realized that the central bank digital currency issue is like the H C Andersen saga on the Emperor´s new clothing: Two swindlers arrive at the capital city of an emperor who spends lavishly on clothing at the expense of state matters. Posing as weavers, they offer to supply him with magnificent clothes that are invisible to those who are stupid or incompetent. The emperor hires them, and they set up looms and go to work. A succession of officials, and then the emperor himself, visit them to check their progress. Each sees that the looms are empty but pretends otherwise to avoid being thought a fool. Finally, the weavers report that the emperor's suit is finished. They mime dressing him and he sets off in a procession before the whole city. The townsfolk uncomfortably go along with the pretense, not wanting to appear inept or stupid, until a child blurts out that the emperor is wearing nothing at all. The people then realize that everyone has been fooled. Although startled, the emperor continues the procession, walking more proudly than ever...