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UK Lawmakers Still Not Sold on Digital Pound

British lawmakers say they’re still not sure their country needs a digital currency.

“It must be clearly evidenced that a retail digital pound will provide benefits to the U.K. economy without increasing risks or leading to unmanageable costs before any decision is taken to introduce it into our financial system,” committee chair Harriett Baldwin said, per a report by Reuters on Saturday (Dec. 2). 

That story coincided with the publication “The digital pound: still a solution in search of a problem?” a House of Commons Committee report.

The Bank of England and the country’s finance ministry are hoping to have a digital pound in circulation by 2030, joining a host of other countries aiming to launch a central bank digital currency (CBDC).

However, the Treasury Select Committee, which compiled the report, noted that while a digital pound had a number of benefits, there were also risks to consider.

“One of the most commonly cited risks was that of ‘bank disintermediation’ — that is, the switching of deposits held with banks into digital pounds,” the report said.

“In periods of financial market stress, the ability to rapidly and easily switch into digital pounds could accelerate the withdrawal of deposits from banks — a so-called ‘bank run’ — and thereby increase the risk of bank failures.”

The report also argues that switching some bank deposits into digital pounds “in normal times” could increase the cost of bank loans to the economy. 

The report came just days after the release of a paper by the Bank for International Settlements warning that CBDCs could have “major implications” for the banks that issue them.

“For CBDCs to be a reliable means of payments, central banks also need to address, among others, the risks of interruptions or disruptions and ensure integrity and confidentiality,” the BIS said last week.

The BIS argues that CBDCs that use novel technologies like distributed ledger technology (DLT) will run into unique cyber risks, as there is no widely accepted cybersecurity framework for that tech.

“Furthermore, there are limited real-world data pertaining to threats to CBDCs, regardless of the type of technology they use,” the paper said.

Meanwhile, Mastercard said last month that widespread embrace of CBDCs is facing an uphill fight due to consumer comfort with traditional forms of money.

CBDCs would have to become as widely accepted as cash to ensure user convenience, Ashok Venkateswaran, Mastercard’s blockchain and digital assets lead for Asia Pacific, said in an interview with CNBC.