U.K. Lords See No Convincing Case for BOE to Make Digital Pounds
(Bloomberg) -- A panel of lawmakers from the U.K. Parliament delivered a blow to the Bank of England’s effort to launch a digital currency, saying officials have given no convincing reason it’s needed.
The House of Lords Economic Affairs Committee, which includes former BOE Governor Mervyn King, raised concerns the project might threaten the stability of the banking system and inject the central bank into controversial debates on privacy.
“The introduction of a U.K. central bank digital currency would have far-reaching consequences for households, businesses, and the monetary system,” Lord Michael Forsyth of Drumlean, chair of the committee, said in a statement on Thursday. “The concept seems to present a lot of risk for very little reward.”
The findings are a blow to proponents of so-called central bank digital currencies, or CBDC, which would give consumers and businesses a form of money that’s as safe as cash but usable in online transactions.
BOE officials led by Deputy Governor Jon Cunliffe have become increasingly vocal about the need for CBDC. They note a sharp drop in the use of cash is leaving money increasingly controlled by private companies that don’t have the explicit government guarantee carried by banknotes and coins.
The Lords publication -- titled “Central bank digital currencies: a solution in search of a problem?” -- echoes several of the concerns raised by critics of global digital money initiatives.
The report notes CBDC could allow the state to have greater surveillance of people’s spending choices. It could also could upset the banking system if consumers shifted traditional deposits into central-bank-backed CBDC.
Alarmed by the growth of crypto currencies including Bitcoin, the BOE along with other central banks is weighing whether to introduce its own form of digital money. The aim is to smooth the way online payments work and deliver the security that cash brings in a digital form -- updating paper banknotes for the 21st century.
BOE officials themselves have been cautious to embrace the project, with Governor Andrew Bailey warning last June that digital money could risk attracting “money launderers and cyber criminals.” Cunliffe has spoken at length about approaches to manage the thorny issues thrown up by CBDCs.
The Lords said other potential risks include “an increase in central bank power without sufficient scrutiny,” as well as “the creation of a centralized point of failure that would be a target for hostile nation state or criminal actors.”
Other institutions, such as the European Central Bank or the People’s Bank of China, are making progress on their own digital currency projects.
The ECB conceded in one of its major reports on the subject that anonymity -- a key feature of cash payments -- “may have to be ruled out” for a digital euro in order to prevent some of the risks of illicit activity.
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