On Tuesday, a British financial organisation, presented its opinion on the matters of digital Pound. The British central bank digital currency (CBDC) is in its development phase and has seen several discussions so far.
According to sources, UK Finance, an organization that represents UK-based banks and financial firms, weighed in on the matter of CBDC usage. Notably, the financial group’s comment came in context to the previous stances that the CBDC would be beneficial in minimising the cash system dominated by banks and financial institutions.
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.
Reportedly, the British financial association suggested the individual holdings of the proposed digital Pound should be limited. Further, the group suggested the limit to be £3,000($3819.37)-£5,000($6365.62) in a bid to avoid panic and the risk of bank runs in the future.
Notably, UK Finance’s suggestions come after initial recommendations from the British government and central bank to impose a temporary cap of £10,000($12731.25)-£20,000($25462.50) to help banks evade deposit flights. The finance membership organization suggested the limit should be significantly lower, highlighting the risks of the digital Pound potentially exacerbating deposit runs in times of financial turmoil.
In addition, the UK Finance stated that the British 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.” The group also referred to the comments from the government which came at the time of the publishing of the consultation paper for the 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.
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. The UK Treasury and the central bank are still exploring potential use cases of a CBDC, with the final decision being expected by 2025.
Just last week, the Bank of England revealed that it aims to trial multiple ledger options, including blockchain, as it seeks to strike a balance between compatibility with distributed-ledger business models and the efficiency offered by conventional ledgers. Simultaneously, the Bank for International Settlements’ London Innovation hub, in collaboration with the BoE, has successfully developed and tested a comprehensive suite of application programming interfaces (APIs) to explore the potential use cases and functionalities of over 30 central bank digital currencies (CBDCs), including offline payments.
Amid the increasing popularity of CBDCs and an intention to minimise the exposure to crypto assets, the UK authorities are actively progressing on the development of digital Pound. However, the lower limit suggested by the UK Finance clearly expresses their hesitation towards the CBDC at the moment which has also been witnessed by some American states.