The introduction of a digital currency that is officially recognized within Britain may increase the chance of a bank run against the banks during an economic downturn An influential House of Lords committee has concluded.
The committee, which includes Lord King of Lothbury and Lord King of Lothbury, who was an ex- Bank of England governor, expressed grave reservations about the idea of a central bank’s digital currency, also known as CBDC which was dubbed “Britcoin” by Rishi Sunak who is the chancellor.
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The Bank has overestimated the advantages of a money, the analysis from the Lords committee on economic affairs determined, while the risks are significant. The committee said there is “no convincing case” for Britcoin as a currency, and that the risks included the possibility of bank run-ins as well as privacy concerns and the potential that it could make Britain vulnerable to attack. UK vulnerable to attacks by hostile governments.
The Bank and the Treasury are holding an official consultation on digital currencies this year following a report by the Bank in the past year outlined seven possible benefits.
They also made the payments system more durable as well as speeding up payment processing and offering a better security-based alternatives to electronic currencies tied to the pound that could be created through the private market.
They envisioned an electronic currency that could be able to sit alongside deposits at banks and cash. It is a sterling-based currency that could be used for everyday payments.
Lord Forsyth of Drumlean Lord Forsyth of Drumlean, chairman of the committee stated that a currency of this kind “would have far-reaching consequences for households, businesses and the monetary system”.
He claimed it was clear that both his organization, the Bank as well as Treasury Treasury would be “barking up the wrong tree” when they envisioned Britishcoin “as a defence mechanism” against rival currencies proposed by large technology companies. It is better to control them, he suggested.
Facebook is among the top players in the preparations for stablecoins or stable currency that operates via a Blockchain platform that is tied to traditional currencies, such as USD or pounds.
This report Central Bank Digital Currencies: A Solution in the Search of a Challenge? marks the third time that the committee has raised questions about Bank policy. In July, it voiced deep doubts about quantitative easing, the policy to stimulate economic growth by electronic creation of money and then using it to purchase bonds issued by the government, declaring it “a dangerous addiction”.
A list was compiled of possible negatives associated with digital currencies the committee stated that there was a risk that in times of uncertainty in the financial market, normal depositors could convert traditional pounds into digital versions to guard against bank failures, which would increase the stress on these currencies.
The Bank also warned of privacy concerns, stating that in order to protect against massive-scale criminal activity , there need to be safeguards against unauthorized transactions. The government as well as the Bank to allegations of using the money in the form of “an instrument of state surveillance”. Additionally, the centralised digital ledger that is needed could be “a target for attack from hostile states and non-state actors”.
The committee has identified some possible benefits of the concept of a “Britcoin”, such as it could spur creativity and competition within the payment system. In theory, for instance, the digital pound could be scheduled to be spent within a certain timeframe or for specific products or services. A CBDC could enable cross-border payments to be faster and more affordable. A pared-back currency for banks only could solve some of the issues.
Lord Forsyth’s report concluded: “We took evidence from various witnesses and no one could give us an argument that was convincing as to that the UK required CBDC. CBDC. It is an enormous amount of risk in exchange with very little return.”
Over 90 central banks have been investigating the possibilities of CBCDs. Seven countries which include those of the Bahamas and Nigeria have announced the launch of digital currencies.