UK lawmakers sees digital pound denting financial stability

British lawmakers have said that a digital pound used by consumers could hurt financial stability.

A committee in the House of Lords, parliament’s unelected upper chamber, reported that an e-pound could raise the cost of credit and erode privacy.

Britain is planning to introduce a Central Bank Digital Currency (CBDC) after 2025 at the earliest.

Britain’s central bank and finance ministry will hold a consultation this year on whether to move forward on the central bank digital currency (CBDC).

Central banks across the world have stepped up work on CBDCs to avoid the private sector dominating digital payments as cash use falls.

Yet, the House of Lords’ Committee thinks that an e-pound used by households and business for everyday payments could see people move cash from commercial bank accounts to digital wallets.

That could spark financial instability in times of economic stress and increase borrowing costs as a key source of lenders’ funding would dry up, the committee said.

However, the committee thinks that a wholesale CBDC used to transfer large sums could make securities trading and settlement more efficient.

The committee advised that Britain’s central bank and finance ministry should consult on its advantages over the expansion of the existing settlements system.