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E-book could undermine financial stability and erode privacy, warn UK lawmakers

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LONDON – An e-book used by consumers could undermine financial stability, increase the cost of credit and erode privacy, although a version intended for wholesale use in the financial sector requires further evaluation, said British lawmakers Thursday.

The UK central bank and the Department of Finance said in November they would hold a consultation this year on whether to move forward on a central bank digital currency (CBDC) to be introduced after 2025 at the earliest. .

Central banks around the world have stepped up work on CBDCs to prevent the private sector from dominating digital payments as the use of cash declines. The prospect of widely used cryptocurrencies issued by Big Tech has also galvanized these efforts.

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But an e-book used by households and businesses for daily payments could allow people to transfer money from commercial bank accounts to digital wallets, according to a report from a House of Lords committee, the upper house. unelected from Parliament.

This could trigger financial instability in times of economic crisis and increase borrowing costs as a key source of finance for lenders dries up, he said.

A digital book could also harm privacy, the report adds, by allowing the Bank of England to monitor spending.

“We were really concerned about a number of risks posed by the introduction of a CBDC,” Economic Affairs Committee chairman Michael Forsyth told Reuters.

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The Potential Benefits of a CBDC https://www.bankofengland.co.uk/paper/2020/central-bank-digital-currency-opportunities-challenges-and-design-discussion-paper – from tackling the decline of cash in support The innovation in payments – established by the Bank of England in 2020 was “overrated” or could be “achieved through alternative means with less risk,” Forsyth said.

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He said, for example, that regulation is a better tool to stave off the threat from cryptocurrencies issued by big tech companies.

The Bank of England did not immediately respond to a request for comment.

Nonetheless, a wholesale CBDC used to transfer large sums could make securities trading and settlement more efficient, according to the report. The UK central bank and the Department of Finance are expected to consult on their advantages over expanding the existing settlement system, according to the report.

The UK parliament should have the final say on any decision to launch an e-book, he said, calling on lawmakers to vote on how such a currency would be governed as well.

Forsyth said Financial Services Minister John Glen had failed to assure that a CBDC “was not just something the Bank of England and the Treasury would prepare and decide on governance.”

A CBDC would “have far-reaching consequences for households, businesses and the monetary system,” Forsyth said. “It has to be approved by parliament.”

Responding to a request for comment on Forsyth’s comments, a spokesperson for the Treasury, which heads Britain’s financial and economic policy, said no decision had been made on whether to introduce a CBDC.

(Report by Tom Wilson edited by Tomasz Janowski)