Peers remain unconvinced of the benefits of a UK digital currency, dubbed ‘Britcoin‘, according to a new report.
The House of Lords’ Economics Affairs Committee raised concerns about plans, currently being explored by the Treasury and Bank of England, to develop Britcoin.
A committee report published today concluded that Peers were “yet to hear a convincing case” for why the UK should adopt a central bank digital currency (CBDC) and warned of significant risks associated with Britcoin, including worries of a digital run on banks during economic downturns.
Committee chair Lord Forsyth of Drumlean, warned that the introduction of Britcoin “would have far-reaching consequences for households, businesses, and the monetary system.”
According to the committee, CBDCs raise extensive privacy risks for users and could harm the UK’s commercial banking sector if UK households swap bank deposits for holdings in Britcoin. This trend could facilitate a digital run on the banks in times of economic hardship the committee said.
Peers also expressed concern that the Bank of England would gain new tools for controlling monetary policy through the roll out of a CBDC, extending their remit and influence.
“The concept seems to present a lot of risk for very little reward,” Lord Forsyth concluded, labelling Britcoin “a solution in search of a problem.”
The report comes as some 90 countries worldwide explore the development of CBDCs, which many governments believe will form the basis of a future global payments systems. China has already issued an electronic version of the yuan to millions of its citizens whilst the EU wants to roll out an electronic euro by 2025.
At a hearing in November, Bank of England bigwig Andrew Bailey told the Economic Affairs Committee that Britcoin could facilitate instant, cross-border payments and spell the end of merchant fees, allowing businesses to avoid the heavy transaction fees levied by traditional payments providers.
With cash payments on the decline and digital payment technology in ascendency the Bank of England’s deputy governor for financial stability, Jon Cunliffe, has also made the case for offering the public Britcoin.
Despite the potential benefits of a UK CBDC Economic Affairs Committee still concluded that they are still outweighed by the risks.
“We found the potential benefits of a digital pound, as set out by the Bank of England, to be overstated or achievable through less risky alternatives,” Lord Forsyth said.