The committee’s report suggests lowering the retail digital pounds’ initial value caps in order to reduce the possibility of bank runs in the event of market volatility.
Legislators in Britain are pushing for caution when it comes to introducing a retail digital pound. They emphasise how crucial it is to strike a balance between potential downsides and technological advancements.
Members of the Treasury Select Committee have voiced concerns about the potential introduction of a retail digital pound, highlighting the necessity of careful consideration prior to implementation. The committee has acknowledged the potential benefits of innovation, but it has also asked the Bank of England (BoE) and Treasury to carefully evaluate whether taking this step is necessary, taking into account the risks and costs involved.
To mitigate the risk of potential bank runs during market instability, the committee’s report suggests imposing lower initial limits on the value of retail digital pounds. The purpose of this particular preventive measure is to discourage large deposits into digital wallets, which could increase the risk of bank failures and loan costs.
Regarding privacy, the report suggested that any legislation establishing a digital pound should strictly restrict the use of data by the BoE or the government. The committee emphasised how crucial it is to safeguard user privacy and make sure that the digitization of money prevents unauthorised surveillance.
According to the report, should legislation be passed to introduce a digital pound, it should specifically prohibit the Government and Bank of England from using the data they obtain through the digital pound for purposes other than those that are currently authorised for law enforcement.
Committee chair Harriett Baldwin emphasised that before considering the implementation of a retail digital pound, strong evidence was required. She maintained that the choice to incorporate it into the financial system should be based on a thorough assessment of these factors, emphasising the need for unambiguous evidence that its implementation would benefit the UK economy without increasing risks or resulting in unmanageable costs.
Legislators in the UK supported the Bank of England’s ongoing design work but called for project cost transparency. Baldwin underlined the necessity of a succinct cost-benefit analysis to guarantee that the implementation of a retail digital pound is consistent with more general objectives of financial inclusion and economic stability.
Investment managers in the UK are meanwhile getting regulatory support to use blockchain technology to tokenize funds instead of using traditional record-keeping methods.