UK politicians and financial experts have expressed their concerns over the proposal to introduce a central bank digital currency (CBDC) dubbed “Britcoin.”
A joint consultation by the Bank of England (BoE) and HM Treasury, established in February, received thousands of responses on the introduction of the digital version of the pound.
The project was launched in April 2021 by then-Chancellor Rishi Sunak, and was overseen by the joint Bank-HM Treasury CBDC Taskforce. The goal was to consult on Britcoin, a digital currency which would be issued by the BoE and used by households and businesses for everyday payment needs.
The digital pound would be different to cryptocurrencies, which are not government-issued. Its value would be stable, said the BoE, “just like banknotes,” which means £10 in Britcoin would be the same value as the £10 banknote.
The digital pound would complement, not replace, cash and make payments in the UK more resilient and functional in an “ever more digital economy,” the consultation paper suggested.
The BoE and HM Treasury said that it was likely that a CBDC will be needed in the future, as the way payments are made changes.
The potential roll-out of the CBDC has been met with mixed reaction from UK lawmakers and financial services groups.
On Tuesday, financial services minister Andrew Griffith said that the UK should proceed “cautiously” in its plans to introduce digital currency.
The House of Lords Economic Affairs Committee Chairman, Lord Bridges, has warned that the BoE and the Treasury should properly scrutinise how a digital currency can destabilise financial services, as well as online privacy and safety.
The cost of introducing a CBDC was another matter, raised by Mr. Bridges, who questioned how much Brits would have to pay whether the Britcoin plans are successful or not.
UK Finance, which represents banking and finance businesses across the UK, has argued that a CBDC could affect monetary policy and stability. The group suggested that a digital currency would only be beneficial if households and businesses hold it and use it to make payments.
“This means some funds would be switched out of commercial bank deposits and into central bank money in the form of CBDC. This could reduce commercial bank funding, potentially impacting the level of credit that banks could provide,” UK Finance said.
The BoE would limit the amount of CBDC per individual to between £10,000 and £20,000, judging that this amount “is likely to strike an appropriate balance between managing risks and supporting wide usability of the digital pound.”
UK Finance argued that the limit is “excessive” and would introduce more risks than benefits “particularly in time of crisis.” Instead a limit between £3,000 and £5,000 would better reflect consumer spending habits, the group added.
Britain’s Payment Systems Regulator (PSR) said that a CBDC could encourage greater competition and promote innovation and efficiency. A different type of payment system could be beneficial, said PSR Chair Aidene Walsh.
“The payment ecosystem will be more resilient and competitive if there are a number of different—overlapping—systems that can take each type of payment. This guards against cyber threats, technical failure, and the risk that the system operators fail to innovate sufficiently quickly,” Ms. Walsh told the Innovate Finance Global Summit in April.
Chancellor Jeremy Hunt and the BoE Gov. Andrew Bailey confirmed that a CBDC would be a “major piece of national infrastructure.”
According to the consultation paper, the completion of the CBDC proposal would take several years, and would require “deep public trust in this new form of money.”
