UK legislators are urging caution in implementing a retail digital pound, emphasizing the need to find a balance between technological progress and potential drawbacks.
To mitigate the risk of bank runs during market instability, the committee's report suggests imposing lower initial limits on the value of retail digital pounds. This precaution aims to discourage large transfers of deposits into digital wallets, which could lead to bank failures and increased loan costs.
Privacy concerns are addressed in the report, recommending strict limitations on the government and BoE's use of data in any legislation introducing a digital pound. User privacy protection and preventing unwarranted surveillance are emphasized during the digitization of currency.
If legislation for a digital pound is introduced, the report proposes expressly limiting the government and BoE from using data acquired through the digital pound for purposes beyond those already authorized for law enforcement.
Committee chair Harriett Baldwin emphasizes the need for compelling evidence before considering the introduction of a retail digital pound. She said:
“It must be clearly evidenced that a retail digital pound will provide benefits to the UK economy without increasing risks or leading to unmanageable costs before any decision is taken to introduce it into our financial system.”
While supporting the Bank of England's ongoing design efforts, UK lawmakers call for transparency regarding project costs. Baldwin highlights the importance of a concise cost-benefit analysis to ensure that introducing a retail digital pound aligns with broader goals of economic stability and financial inclusion.
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