House of Lords Committee: ‘No Convincing Case’ for UK To Launch CBDC

According to House of Lords committee, there is “no convincing case” for the U.K. to have a central bank digital currency (CBDC).

UK’s upper house Economic Affairs Committee set up the enquiry in September to look into how a CBDC might affect the role of the Bank of England (BoE), monetary policy and the financial sector.

According to the committee’s report:

“While a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy.”

The Bank of England, like almost every central bank of a major economy, is exploring a potential CBDC as a means of addressing the decline in the use of cash, expediting the implementation of monetary policy and future-proofing fiat currencies from the rise in use of privately issued digital currencies.

BoE have plans to start a consultation alongside the Treasury later this year to explore design features, benefits and implications for users.

According to the House of Lords committee, it would be “inevitable” that consumers would transfer money from their bank accounts into CBDC wallets. Therefore safeguards would be required on the amount of CBDC individuals could hold to avoid financial instability being exacerbated during turbulent economic times by people replacing bank deposits with digital banknotes.

There is also a risk for Bank of England being drawn into “controversial debates on privacy” were it to add design features to the CBDC to counter its use for criminal activity.

The committee elaborated:

“While there are design options that would provide some privacy safeguards, technical specifications alone may be insufficient to counter public concern over the risk of state surveillance.”

The potential benefits of a CBDC are “overstated or achievable through less risky alternatives,” Lord Forsyth of Drumlean, chair of the committee, said.

Last year, Bank of England established two forums to discuss some of the issues with representatives from companies such as Paypal, Spotify, Mastercard and Visa among the members.

If Bank of England would proceed with the development of a digital pound, the earliest that it could be rolled out is 2025-2030.