Wed. Jan 26th, 2022

The British Parliament, and not the Bank of England, must decide whether to introduce a state-sponsored digital currency because the move will have “far-reaching consequences”, an influential House of Lords committee warned on Thursday.

Rejecting many of the potential benefits of a digital currency issued by the central bank, a report by the House of Lords Economic Affairs Committee said the proposal has potentially serious implications, including privacy issues. It describes the concept as “a solution to a problem”.

The BoE, which last year set up a joint task force with the Treasury to evaluate the cost and benefits of its own digital currency, is one of more than 90 central banks worldwide investigating the concept.

The idea is to create the equivalent of a digital banknote for people to buy goods and receive payments, directly linked to the central bank. It will compete with commercial banks, which already allow people to make digital payments via credit and debit card transactions, and other forms of electronic payment, such as PayPal.

The BoE said a central bank digital currency can improve the efficiency of transactions and lower costs.

But the report by the committee, of which former BoE Governor Mervyn King is also a member, found few compelling reasons for such a currency. “We have not yet heard a convincing case as to why the UK needs retail [central bank digital currency]. ”

It warned that any state’s digital currency – particularly one involved in individuals’ accounts held at the BoE – “has far-reaching consequences for households, businesses and the monetary system for decades to come and could pose significant risks, depending on how it is designed “.

The report expressed concern that such a currency could be used by the state to spy on people’s spending habits and could be used to charge people to keep money, even though BoE Governor Andrew Bailey told the committee is not the goal.

“The application of monetary policy should not be a motivation for the introduction of a central bank digital currency,” the report said.

It said there were potential implications for national security, citing vulnerability to interference by hostile forces and the stability of the rest of the financial system.

For all these reasons, the report said that any move to reflect other digital currencies by the state should involve consent from both houses of parliament via primary legislation.

“We were really concerned and honestly, I was a little disappointed with the testimony of the Treasury on this issue regarding the role of parliament in the establishment of a [central bank digital currency], ”Lord Michael Forsyth, the Conservative counterpart and chairman of the committee, told the FT.

“When the Minister of the Treasury testified, he did not really express our concerns that it could be something that was only cooked up by the Treasury and the Bank of England and if in the [BoE]bail, ”he added.

Central bankers have regularly said that the launch of their own digital currencies will dispel the threat of privately backed currencies launched by companies like Meta, formerly Facebook. The report said officials had failed to adequately explain the threat they posed.

The BoE declined to comment on the report.

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