CBDCs to have “transformative” impact on payments, say fintechs

Monzo, Revolut and Monese say a central bank digital currency (CBDC) would have a “transformative” effect on the payments and the banking ecosystem but disagree with the Bank of England about the level at which individual holdings should be capped at.

UK Finance, which represents more than 300 banking firms and a raft of fintechs, has issued its recommendations to the Bank of England regarding a proposed CBDC.

The finance ministry and Bank of England have launched a public consultation on whether to issue a CBDC, mirroring moves by many central banks across the world.

UK Finance recommends that individual holdings of a CBDC should be capped at £5,000 to avoid panic and deposit flight.

This is at odds with the Bank of England which proposed to cap these holdings at a temporary limit of between £10,000 and £20,000.

UK Finance said the Bank of England level cap “doesn’t provide a good balance between functionality and economic outcomes”.

It also warned that a CBDC, which has been dubbed Britcoin, was “likely to trigger concerns about privacy and state interference” if widely adopted.

It added that a CBDC would not “necessarily lead to good consumer outcomes, risks undermining the balance between central and commercial bank money, and introduce significantly more risks to financial stability than benefits”.

UK Finance also said there could be “better ways” of making digital central bank money available to UK retail consumers, which “could be explored simultaneously”.

“Such alternatives to a pure CBDC could, we suggest, better continue the ethos of the current effective money system in the UK, where consumers and businesses can interchange seamlessly, and without being aware, between central bank and commercial bank money,” it added.

This week, financial services minister Andrew Griffith said the UK should remain cautious about whether to issue a CBDC.

"My thinking about CBDC is that we should proceed cautiously, which is precisely what we are doing in the joint consultation with the Bank of England," Griffith told the House of Lords' Economic Affairs Committee.

"It's right to engage and have the very widest - and, to a degree, the most thorough - public policy debate which we have started with the process of consultation," he added.

The Treasury wants to issue a central bank digital currency by the end of the decade.

The project was launched in 2021 when Rishi Sunak was chancellor as part of his efforts to digitise the economy

The proposal for issuing a digital pound is currently being debated by financial organisations in the UK.

Other counties have embraced central digital currencies, including China which has launched a digital Yuan and India which is rolling out a digital version of the rupee.