House of Lords does not see a 'convincing case' for a UK CBDC
The House of Lords believes a UK CBDC would pose "significant risks"
As a result of an inquiry into CBDCs launched in September 2021, the House of Lords Economic Affairs Committee has said that there is "no convincing case" for the introduction of a UK central bank digital currency (CBDC).
It also found that the creation of a UK CBDC could lead to a run on the banks during economic downturns and potentially pose significant risks in the UK.
In November, the Bank of England (BoE) and HM Treasury (HMT) announced that they will launch a consultation regarding a UK CBDC in 2022.
The BoE is not alone in looking into CBDCs, as 90 other central banks around the world are exploring whether they should introduce their own digital currencies.
The committee’s report said: “The introduction of a UK CBDC would have far-reaching consequences for households, businesses and the monetary system for decades to come and may pose significant risks depending on how it is designed.”
The risks referred include the state surveillance of people’s spending choices and the financial instability that comes with people converting bank deposits into a CBDC during periods of economic uncertainty.
A CBDC would also increase the power the central bank holds without sufficient scrutiny, while "the creation of a centralised point of failure could be a target for hostile nation state or criminal actors".
BoE governor did not persuade Lords committee
The committee was not persuaded by any of the witnesses who presented the case for a UK CBDC.
Witnesses included Andrew Bailey, governor of the BoE, Sir Jon Cunliffe, deputy governor for financial stability at the BoE, John Glen, economic secretary to the Treasury, and Charles Roxburgh, second permanent secretary to the Treasury.
The committee feels that a CBDC may provide some advantages but presents numerous "significant challenges for financial stability and the protection of privacy".
However, the Lords’ report did say it recognises the importance of investigating the details of a CBDC and encourages the BoE to continue to do so. The report added: “We recognise that consumer payment preferences, technological developments and the choices of other countries may enhance the case for a UK CBDC in the future.”
A lawyer’s perspective
Thomas Cattee, head of white-collar crime at Gherson Solicitors, read the report and said: “Whilst some countries are well on the way to actually implementing a CBDC, and despite there being some talk of a Britcoin in the UK, it is positive to now see the UK is taking a cautious and measured approach.
“For the implementation of a UK CBDC could have far-reaching consequences, not least the potential for increased state surveillance on individual spending and encroachment on individual privacy. It is reassuring to now see these specific concerns being raised and debated. However, the UK is also sensibly taking a pragmatic approach and not closing the door to this initiative and has appreciated that there might be a case for a UK CBDC in the future.”