CBDC can offer certain advantages while also posing serious problems for financial stability and for privacy. This conclusion is contained in the report of the House of Lords’ Economic Affairs Committee.
The concept carries a significant risk for a small reward. The potential benefits of the digital pound are overstated or could be achieved with less risky alternatives, said the committee chair, Lord Michael Bruce Forsyth.
The digital pound could prompt outflows from bank accounts to digital wallets. This could raise borrowing costs and undermine financial stability in a crisis, the document says.
CBDC also poses security challenges—both individual accounts and the central registry could become targets for cyberattacks. For this reason, the national digital currency system must adapt to reflect threats, including those posed by quantum computing.
The wholesale CBDC could improve the efficiency of settlements and the trading of securities; however, further research and experimentation are required.
The committee recommended that the working group consider wholesale CBDC use cases alongside retail.
Lawmakers did not rule out that arguments in favour of a digital pound could change in the future. The government and the Bank of England must work on shaping global standards, particularly on privacy, security and operational standards.
Parliamentarians are convinced that lawmakers must have the final say in any decision to launch a digital pound.
In April 2021, the Bank of England and Her Majesty’s Treasury formed a CBDC working group.
In September, the departments created two forums with representatives from Visa, Mastercard, SWIFT, PayPal, Google and others to study different aspects of launching the digital pound. In October, Ripple joined the initiative.
Earlier, BoE Chief Economist Andrew Haldane suggested that the advent of national digital currencies could reduce the risks of financial crises.
According to a survey, only 24% of Britons supported the introduction of the digital pound. The public’s main concerns are the threat of hacker attacks and privacy breaches.
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