Despite the benefits highlighted in the ongoing testing of CBDC concerning issuance, distribution, and privacy, the committee fears that the launch of a digital pound could incur additional costs.
The UK’s House of Commons, the lower house of Parliament, recently released a report addressing the country’s potential implementation of central bank digital currency (CBDC). The report urged the Bank of England (BoE) and the Treasury to conduct additional research to determine the advantages of introducing a digital pound in the region.
According to the report published on December 2, the BoE proposed the launch of CBDC in the UK in 2020 and has now progressed to the design phase, which is expected to extend from 2025 to 2026.
However, the committee expressed skepticism, asserting that the central bank and the Treasury have yet to present a convincing case for launching a retail CBDC in the United Kingdom.
“We have yet to hear a convincing case for why the UK needs a retail CBDC. While a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy,” reads the report.
UK Could Launch Retail CBDC Before the End of the Decade
The committee said that once the central bank concludes testing the “design phase” of the CBDC, the digital assets could be launched in the second half of the decade.
According to the report, the decision to proceed with building a digital pound will depend on the findings from the design phase and how the payments landscape evolves in the UK and abroad in the coming years.
“There will subsequently be a decision on whether to build a digital pound, which will depend on the findings from the design phase, and on how the payments landscape evolves in the UK and abroad in the coming years. If a decision is taken to proceed with building a digital pound, it could be launched in the second half of the decade,” reads the report.
Currently, the BoE is in the testing phase of the project. However, the committee raised concerns about the funds used to run the CBDC pilot. According to the house committee, the CBDC initiatives and testing associated with the potential launch of the asset class have incurred substantial expenses for both the central bank and the Treasury.
In response, the committee has recommended increasing transparency concerning the costs associated with CBDC initiatives to reduce expenses and prevent unnecessary spending on a digital pound that may not proceed to actual implementation.
The committee also suggested incorporating a separate line item in the annual report and accounts of the central bank starting next year to curb costs.
Concerns Over Potential Costs and Speculations
Despite the benefits highlighted in the ongoing testing of CBDC concerning issuance, distribution, and privacy, the committee fears that the launch of a digital pound could incur additional costs.
“It is important that the Bank of England and Treasury keep control of these costs to avoid spending more than necessary on a digital pound that might not proceed to being built,” reads the report.
Expressing concerns, the House of Commons states:
“It is not clear to us at this stage whether the benefits are likely to outweigh these risks.”
Furthermore, the committee has urged the BoE to refrain from speculating that a digital pound could solve issues beyond its capabilities.
The House has also urged the BoE and the Treasury to reconsider their proposals to not implement interest payments on the CBDC.
“We recommend that the Bank of England and Treasury undertake further analysis on the monetary policy impact of paying interest on the digital pound, and in the meantime ensure that their design work does not preclude the possibility of paying interest on the digital pound,” wrote the House.
