A House of Lords cross-party committee has said there is no compelling case for introducing a central bank digital currency.
In a report published today (13 January), the Lords Economic Affairs Committee said that while a central bank digital currency could offer some benefits, it could present “significant challenges” to financial stability and protection. of privacy.
Lord Forsyth of Drumlean, chairman of the committee, said the introduction of a digital currency would have far-reaching consequences for households, businesses and the monetary system.
“We collected testimonies from various witnesses and none of them were able to give us a compelling reason why the UK needed a central bank digital currency,” he said. declared.
“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.”
The report highlighted two main security risks posed by the introduction of digital currency.
First, individuals’ accounts could be compromised by weaknesses in cybersecurity, and second, the centralized registry (which the report says is a critical part of the national infrastructure), would be a target of attack.
“While no design can guarantee absolute safety, all [digital currency] The system will need to be adaptable to emerging security threats and technological changes, including rapidly developing quantum computing.
Digital currency would be a new form of currency issued by the Bank of England using blockchain technology. It would be available to households and businesses and would exist alongside cash and bank deposits, rather than replacing them.
Currently, payments are based either on cash or on deposits held with commercial banks. Digital currency would be an electronic form of central bank money provided for retail use and would therefore be a direct responsibility of the central bank.
The Bank of England and the UK Treasury intend to hold a consultation this year on the possible implementation of a digital currency.
The consultation will enable the bank to decide whether it would be appropriate to move on to a development phase which would then be spread over several years.
The earliest launch of digital currency is the second half of this decade.
In the Lords report, it was pointed out that if a digital currency is introduced, it is inevitable that some people will transfer their money from a bank account to digital wallets.
Without proper safeguards, for example on limits on the amount of digital currency that can be held, the committee said “financial instability could be exacerbated” during times of economic stress, with consumers replacing bank deposits with cash. digital “which can be perceived as safer” .
But the committee said introducing a wholesale digital currency for use between financial institutions could have some benefits and recommended further consultation.
“While the wholesale operations of the monetary system are already efficient, a [digital currency] can help further improve the efficiency of securities trading and settlement, but further exploration and experimentation are needed,” he said.