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House of Lords Committee: Central Bank digital currency – a threat to financial stability and privacy

The Economic Committee of the House of Lords of the UK Parliament expressed the opinion that the massive transition from cash to digital currencies of central banks (CBDCs) will bring many problems.

The Economic Affairs Committee of the Upper House of Parliament has posted a report on the results of a study of the prospect of a CBDC, titled “Digital Central Banks: A Solution in Search of the Problem?” The committee, with the involvement of experts, conducted the study back in September.

“While government digital currencies can provide some benefits, they can pose major challenges to financial stability and privacy protections,” the report said.

The House of Lords committee believes that consumers will inevitably transfer money from bank accounts to wallets with their country’s central bank digital currency, if such a currency is created.
It will require, the report says, precautions against government digital currency in retail accounts to avoid exacerbating financial instability in turbulent times for the global economy – when people rush to replace bank deposits with digital banknotes.

The report’s authors concluded that there is no need for the UK to be a pioneer in issuing CBDCs. Because a number of important issues related to geopolitics and cybersecurity remain unresolved.

The authors of the House of Lords committee report warn that poor planning and security measures in CBDC implementation can have “far-reaching consequences” and “pose significant risks.”

The Bank of England, together with the Central Banks of other countries, is studying the potential of the state digital currency as a tool to reduce the use of cash and ensure the protection of the traditional financial system from freely circulating cryptocurrencies. In 2022, the Bank of England plans to begin consultations with the Treasury Department to explore the design features, benefits and implications for users of CDBC implementation.

According to a survey by Redfield & Wilton Strategies, 30% of Britons do not believe in the potential of the Bank of England digital currency and believe that it has more disadvantages than advantages. In 2021, Jeremy Fleming, the head of the British Center for Government Communications, said that the digital currency of the Central Bank of China could be used to collect information about users and control international transactions.

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