Lord Forsyth of Drumlean
No “convincing case” for Central Bank Digital Currencies, says Lords committee
A House of Lords committee argues that a CBDC would bring privacy and financial security issues, pouring cold water on hopes for a ‘digital Pound’.
There is no convincing case for why the UK needs a central bank digital currency (CBDC), according to a new report from the cross-party Lords Economic Affairs Committee.
CBDCs, while different from crypto-asset such as Bitcoin, has become increasingly of interest to financial policy and central bankers makers in tandem with the increasingly mainstream adoption of crypto in recent years. Both are wholly digital and both make use of blockchain technology. The key difference is decentralised (crypto) vs centralised (CBDC).
Digital or electronic forms of money have also existed for decades but what makes CBDCs different is also its apparent lack of anonymity of users’ transactions that is the defining feature of ‘normal’ cash.
In its report, ‘Central bank digital currencies: a solution in search of a problem?’, the committee found that while a CBDC may provide some advantages, it could present significant challenges to individual privacy.
“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,” said Lord Forsyth of Drumlean, Chair of the House of Lords Economic Affairs Committee.
“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,” he added.
In additon to privacy concerns, the report noted financial stability as another risk area if a CBDC was introduced.
During a period of market stress, it said, me people will transfer money out of their bank accounts and into CBDC wallets, exacerbating volatility.
The security of the wallets themselves, as well as the central ledger of transactions, could also potentially be comprised, it said, from hostile third parties.
You can read the full report on the committee's website.