UK Legislators Push for Reduced Digital Pound Cap

• UK Treasury Committee Releases Concerns About the Government's Digital Pound Plans
• Lawmakers Push for Lower Individual Holding Limits and Possible Interest Earning
• A Global Shift Toward CBDCs
• Disagreement on Interest Earning
• Proposed Limits and Privacy Concerns
• Next Steps for a Digital Pound

UK Treasury Committee Releases Concerns About the Government's Digital Pound Plans

Lawmakers Push for Lower Individual Holding Limits and Possible Interest Earning

Officials from the U.K House of Commons Treasury Committee have voiced their apprehensions about the government's strategy for a digital pound. They advocate for lower holding limits than those proposed and for the government to design a digital pound capable of earning interest. Current proposals from the U.K. and European Union state that central bank digital currencies, similar to cash, should not accrue interest.

Government officials are being urged to reconsider the proposed holding limits for the potential digital pound and ensure its structure does not prevent the possibility of paying interest. The U.K., along with the European Union's 27 nations, have suggested in their proposals that retail digital currencies should not be allowed to generate interest like bank deposits do.

A Global Shift Toward CBDCs

In a February consultation, U.K. legislators in the Treasury Committee of the House of Commons released a report expressing concerns about the U.K.'s plans for a central bank digital currency (CBDC). The government has indicated that a digital pound is likely needed in the future. Countries worldwide are investigating CBDCs as a method to enhance payments and promote digital finance within central banks.

All eyes are on Europe, where the U.K. and the European Union (EU) are proposing concrete plans for CBDCs for private retail payments, despite the U.S. still being undecided on the need for a digital dollar.

Disagreement on Interest Earning

The EU's plans for a digital euro have faced criticism from lawmakers. While U.K. lawmakers seem to agree with the EU's proposals for a lower individual holding limit for the digital euro to prevent a customer exodus from banks, they disagree with the notion of barring CBDCs from earning interest, essentially treating them like cash.

The U.K. legislators recommend that the Bank of England and Treasury conduct further analysis on the monetary policy impact of paying interest on the digital pound. They also recommend ensuring that the design does not preclude the possibility of paying interest on the digital pound.

Proposed Limits and Privacy Concerns

The proposed holding limit of 10,000 - 20,000 British pounds ($12,663 - $25,320) by the U.K. Treasury for a digital pound has been cautioned against by lawmakers. Instead, they propose a lower limit, similar to the 3000 euro cap suggested by the EU's European Central Bank, to reduce the risk of large-scale outflows from bank deposits into digital pounds.

The U.K. Treasury Committee report shares the skepticism of EU lawmakers, questioning whether the benefits of a digital pound outweigh potential risks. They warn that digital pound legislation should not enable the government to gather user data from payments beyond what is permitted by law enforcement.

Next Steps for a Digital Pound

Despite these concerns, the committee supports further consultation work on the design of a digital pound, provided benefits increase and risks to privacy and financial stability are mitigated. They urge the government and Bank of England to detail the criteria informing their final decision on issuing a digital pound as soon as possible.

Given that a decision to issue a CBDC is pending, legislators want to hold the government accountable for the costs of studying and designing a digital pound. They want the Bank of England and the country's Treasury to track these expenses.

To ensure transparency around the costs incurred, we recommend that the Bank of England reports expenditure on the digital pound as a separate line item in its annual report and accounts from 2024 onwards," the report stated.

The U.K. Treasury is anticipated to release its response to the consultation on its proposed model for a digital pound shortly. This will be followed by a design and experimentation phase before a decision on whether to issue one is made.

Edited by Jonathan Stoker