The Bank of England should not introduce a ‘digital pound’ until it addresses concerns over data privacy and the increased risk of bank runs, a parliamentary committee has warned.
MPs on the Treasury select committee said serious questions remained about whether the positive effects outweighed the risks and costs.
The committee expressed concerns that creating an electronic form of currency – held directly with the Bank of England rather than commercial lenders such as the high street banks – could pose risks to the UK’s financial stability, including the increased risk of bank runs. The MPs said that if customers were able to quickly and easily switch their bank deposits into digital pounds, particularly during times of financial stress or panic, this would “increase the risk of bank failures”.
“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,” said committee chair Harriett Baldwin.
MPs said ministers also needed to “alleviate privacy concerns” that the government or third parties could misuse personal data, by either tracking or controlling how users spend their digital funds. “These concerns could be mitigated through robust regulation and legislated protections related to the ability of any future government to access people’s data,” the committee said.
Baldwin said additional attention should be paid to access to physical cash. “We must also keep a close eye on ensuring that any retail digital pound does not worsen financial exclusion for those reliant on physical cash. The digitisation of money can’t, in any way, leave those people behind,” he added.
“While we support the Bank of England’s plan to continue working on the design of a potential retail digital pound, I would urge them to proceed with caution and maintain a genuinely open mind as to whether one is actually needed.”
The Bank of England is now in the design phase of a potential digital pound, although a final decision on whether to launch the project may not come until the second half of this decade.
The Bank and Treasury said in a joint statement that they welcomed the report and would respond in due course. They said: “We have always been clear a digital pound would only ever be introduced alongside cash, and that protecting individual privacy is paramount in any design.”
“We must also keep a close eye on ensuring that any retail digital pound does not worsen financial exclusion for those reliant on physical cash. The digitisation of money can’t, in any way, leave those people behind”.
Harriett Baldwin, Parliamentary Committee Chair.
