Although there have been persistent rumors regarding a UK CBDC, that plan may not come to fruition after all. Peers in the House of Lords confirm there is no need for such a currency now or immediate future. Nevertheless, it is good news for cryptocurrencies, although their use may not increase overnight either.
The House of Lords has shut down the concept of creating a UK CBDC. However, like other countries, the United Kingdom acknowledges there is potential for creating a central bank digital currency. It would directly respond to the rising popularity of cryptocurrencies like Bitcoin and Ethereum. Even so, there needs to be a valid ground to have the central bank create a digital currency.
Per the Economic Affairs Committee, a UK CBDC may provide some advantages. However, the challenges such a vehicle introduces – regarding financial stability and privacy protection – can outweigh the potential benefits. There are always two sides to every coin, regardless of it being physical or virtual.
The UK CBDC project is known as Bitcoin and is the brainchild of the Bank of England and HM Treasury. Both entities remain bullish on this concept as cash usage in the UK continues to decline. Moreover, they see a threat emerge through private digital currencies. However, if there is no reason to create such a currency, the Bank of England and HM Treasury findings are partially invalidated.
Committee Chair Lord Forsyth of Drumlean adds:
“We took evidence from a variety of witnesses and none of them were able to give us a compelling reason for why the UK needed a central bank digital currency. The concept seems to present a lot of risk for very little reward. We concluded that the idea was a solution in search of a problem.”
Creating a UK CBDC can trigger a bank run during times of economic stress. Additionally, it can draw the Bank of England into controversial debates on state surveillance and privacy. Furthermore, the house of Lords has concerns regarding hostile attacks on the centralized ledger supporting Britcoin. Centralized infrastructure will always remain a weakness in any setting.