The Lords Economic Affairs Committee has recently published their report on central bank digital currencies (CBDCs), providing their findings on digital currency and outlining what they perceive to be “significant risks” to the UK economy.
The report titled ‘Central bank digital currencies: a solution in search of a problem?’ is the synthesis of the views by the committee of peers alongside several key witnesses including Bank of England Governor Andrew Bailey and his deputy Sir John Cunliffe, economic secretary to the Treasury John Glen and senior Treasury official Charles Roxburgh.
The introduction of a CBDC will lead “inevitably to some disintermediation of the banking sector” the report notes, and continues with the recommendation that the Bank of England conduct further studies to assess the effects on the banking system.
Lord Forsyth, the committee’s chairman, was concerned with the supposed benefits of a CBDC, adding that they are “overstated, or they could be achieved via alternative means with fewer risks. In the UK, a central bank digital currency is a bit of a solution in search of a problem.”
While the committee acknowledged the need to investigate CBDCs, the report focused heavily on the risks that the introduction of a CBDC could carry, particularly for financial stability and the protection of privacy.
“We have yet to hear a convincing case for why the UK needs a retail CBDC. While a CBDC may provide some advantages on speed of settlement and cheaper and faster cross-border payments, it would present significant challenges for financial stability and the protection of privacy. Furthermore, a lot of work remains to find workable solutions which do not entail difficult design trade-offs which may make a CBDC unattractive. Earlier in this report, we put several questions to the Joint Taskforce which need to be answered”
The report concludes that the committee welcomes governments and financial watchdogs to begin identifying ways to regulate issuers of crypto assets.
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