A 'Britcoin' would carry financial stability and security challenges and there's 'no convincing case' for one, says House of Lords report
A digital pound for use by consumers poses security and financial stability risks and there's no need for the UK's central bank to introduce one, according to findings of a committee in the UK Parliament's House of Lords.
A central bank digital currency, or CBDC, however, could be beneficial for use between financial institutions, said the Lords Economic Affairs Committee in a report published Thursday.
The report from Parliament's unelected upper chamber comes as the Bank of England explores the possibility of launching a digital version of the UK's currency nicknamed "Britcoin".
"The report concludes that there is no convincing case for why the UK needs a central bank digital currency (CBDC). The committee found that while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy," the committee wrote in a report entitled, "Central bank digital currencies: a solution in search of a problem?"
A CBDC is a digital banknote issued by a central bank directly to consumers and is backed by fiat reserves.
The introduction of a digital pound would inevitably lead some people to transfer money out of their bank accounts and into CBDC wallets, the committee said. "Without safeguards, such as limits on the amount of CBDC individuals can hold, financial instability could be exacerbated during periods of economic stress as people seek to replace bank deposits with CBDC which may be perceived as safer," it said.
The Bank of England in November said if plans for a digital pound are implemented.
The Lords' committee determined there are two main security risks posed by a digital pound. Firstly, individual accounts could be compromised through weaknesses in cyber security.
"Second, the centralised CBDC ledger, which would be a critical piece of national infrastructure, would be a target for attack from hostile state and non-state actors," it said. "While no design can guarantee absolute security, any CBDC system will need to be adaptable to emerging security threats and technological change, including fast-developing quantum computing."
A CBDC may be helpful for financial institutions as it may help to further enhance efficiency in securities trading and settlement, but further exploration and experimentation are necessary, the committee said. It recommended that a joint taskforce formed by the Bank of England and the UK Treasury conduct consultation on the use case for a wholesale CBDC alongside its retail consultation this year.Source