Global: Lawmakers Urge Caution in Introducing Digital Pound, Citing Risks

British lawmakers have cautioned against the introduction of a digital pound in large sums initially to mitigate the risk of potential bank runs, according to a report on Saturday. The Treasury Select Committee emphasized the importance of safeguarding cash and user privacy.

While the Bank of England (BoE) and the finance ministry have indicated the likelihood of an electronic pound in the latter half of the decade, lawmakers in the Treasury Select Committee stressed the need for a careful evaluation of the costs and benefits associated with a digital currency.

Committee chair Harriett Baldwin stated, “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.”

The report suggested that, initially, a digital pound should have a smaller limit, possibly to avoid the risk of a bank run caused by a sudden shift of large deposits into digital wallets during market turmoil. The Bank of England proposed a limit of up to £20,000 for digital wallets provided by banks.

The committee’s report, titled “The digital pound: still a solution in search of a problem?” highlighted concerns about potential surveillance of spending habits and the elimination of cash with the introduction of a digital pound. The committee recommended that any primary legislation introducing a digital pound should not permit the government or the Bank of England to use the data for purposes beyond those allowed for law enforcement.

The Bank of England had earlier stated that interest would not be payable on digital pound deposits, but the committee suggested a review of this position.

In response, the Treasury and the BoE issued a joint statement, noting that they would formally respond to the committee’s report and outline the next steps in a consultation paper. They reiterated their commitment to introducing a digital pound alongside cash and emphasized the paramount importance of protecting individual privacy in the design of any digital currency.