MPs caution against digital pound risks.

Committee flags data privacy and bank run risk.

A parliamentary committee warns against considering a digital pound until concerns over data privacy and increased bank run risks are addressed. MPs emphasized that while a central bank digital currency might stimulate innovation and competition in payments, its benefits versus risks and costs raise serious questions.

The MPs expressed worries about the potential risks to financial stability if a digital pound, managed directly by the Bank of England rather than commercial banks, is introduced without careful oversight. They highlighted concerns regarding the increased risk of bank runs, especially during financial turmoil, if customers swiftly shift their deposits to digital pounds at the Bank, potentially leading to bank failures.

Furthermore, transitioning to digital pounds could impact interest rates on loans during regular periods, as lenders might face the need to acquire more expensive funding through wholesale markets to replace lost deposits. The committee stressed the necessity for clear evidence that a retail digital pound would benefit the UK economy without amplifying risks or generating unmanageable costs before its introduction into the financial system.

Committee Chair Harriett Baldwin, a Conservative, emphasized the importance of proving the benefits of a retail digital pound without increasing risks or costs before its implementation. Additionally, MPs urged the government to address privacy concerns related to potential misuse of personal data, proposing robust regulations and legal protections to prevent unauthorized access to users’ spending details.

Although the Bank and Treasury are in the design phase of a potential digital pound after consultations, a final decision might not emerge until the latter half of the decade. Baldwin emphasized the necessity to monitor access to physical cash to prevent financial exclusion for those reliant on it, ensuring that the digitization of money doesn’t leave anyone behind.