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The digital pound could affect financial stability and damage privacy, British lawmakers warn

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LONDON, Jan. 13 () – The digital pound used by consumers could hurt financial stability, increase credit costs and damage privacy, but the version for wholesale use in the financial sector will require more valuation, Britain said on Thursday. legislators.

The UK’s central bank and finance ministry said in November that they would hold consultations on moving forward on the central bank’s digital currency (CBDC), which will be introduced after 2025.

As cash use declined, central banks around the world stepped up work on the CBDC to keep the private sector from dominating digital payments. The prospect of widely used cryptocurrencies released by Big Tech has also boosted such efforts.

But the e-pound, which is used by households and businesses for daily payments, could see people transfer cash from commercial bank accounts to digital wallets, according to a report by the House of Lords Committee, an unelected upper house of parliament.

This could lead to financial instability during periods of economic stress and increase borrowing costs as lenders run out of the main source of funding, he said.

The digital pound can also damage privacy, the report said, allowing the central bank to control spending.

“We are really concerned about a number of risks associated with the introduction of the CBDC,” said Michael Forsyth, chairman of the Committee on Economic Affairs.

Many of the benefits for consumers can be achieved “with alternative methods with less risk,” Forsyth said, pointing to regulation as the best tool to prevent the crypto threat issued by Big Tech firms.

However, wholesale CBDCs used to transfer large amounts can make securities trading and settlements more efficient, the report said. The British Federal Reserve and the Treasury should consult on its advantages over expanding the existing accounting system, he said.

The British Parliament should have the final say on any decision to launch the e-pound, the report said, urging lawmakers to vote on its management as well.

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

Tom Wilson’s interview was edited by Thomas Janowski

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