Earlier this year, the Bank of England and the UK finance ministry published a consultation paper for the design of a central bank digital currency (CBDC).
At the time, the officials said that a digital pound could be launched by the second half of this decade to avoid fragmentation of an electronic cash system that is currently dominated by the world’s biggest tech and banking institutions.
On July 4, UK Finance, an organization that represents UK-based banks and financial firms, weighed in on this matter.
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Namely, the group said the individual holdings of the proposed digital pound should be limited to £3,000-£5,000 in a bid to avoid panic and the risk of bank runs.
UK Finance says authorities must outline clear digital pound objectives
UK Finance’s suggestions come after initial recommendations from the British government and central bank to impose a temporary cap of £10,000-£20,000 to help banks evade deposit flights.
The finance membership organization said the limit should be significantly lower, citing risks of the digital pound potentially exacerbating deposit runs in times of financial turmoil.
In addition, the group argued that the UK authorities are yet to lay out “clearly what objectives and needs the digital pound is expected to meet and why it is best suited to meet those needs. It is not clear from the consultation what place in the market digital central bank money is expected to take.”
UK authorities to take final decision on CBDC by 2025
UK Finance is one of the world’s largest finance membership organizations. It acts as a collective voice for more than 300 leading firms in the sector, including major banks such as Barclays, HSBC, Lloyds Banking Group, NatWest, Halifax, and Santander, among others.
The digital pound, also referred to as ‘Britcoin,” represents an attempt by British authorities to issue a safe form of digital cash that would put off consumers from using private sector stablecoins such as the failed Libra project launched by Facebook in 2019.
The UK Treasury and the central bank are still exploring potential use cases of a CBDC, with the final decision being expected by 2025.
