Europe, UK (Commonwealth Union) – A Central Bank Digital Currency (CBDC) has been widely discussed across the world with the increase in digital transaction via digital platforms with cryptocurrencies such as bitcoin and the increased use of mobile money.
A CBDC is a digital form of a nation’s fiat currency, issued by the central bank and designed to be used as a medium of exchange. A UK version of the CBDC which is set to called the Britcoin which has been a key focus in recent years.
Tulip Siddiq MP, Labour’s Shadow City Minister, responded last year to HM Treasury and the Bank of England’s plan for a digital pound, saying “We fully support the Bank of England’s work exploring the potential benefits of a safe and stable, Central Bank Digital Currency.
However civil liberties groups have warned against this move stating that a CBDC with no cash could permit authorities to punish individuals who are opposed to the polices pointing to similar move in Canada where the trucker protesters and those showing financial support to them were financially penalized by the government and many point to the financial penalization of Wiki Leaks.
According to a report in the Telegraph the PM Rishi Sunak’s move on the Britcoin have also been met with severe opposition from the British public.
The Reform UK manifesto has stated that it opposes CBDC and a classless society, however many other parties have not specifically addressed the issue of a CBDC.
One of the most significant drawbacks of CBDC is the potential invasion of privacy. Central Banks could have access to detailed information about individuals’ financial transactions, which could be used for surveillance or other purposes. This raises concerns about data privacy and the potential for misuse of personal information. The lack of privacy with increased digitalization has already been a key concern and a CBDC could also increase this concern.
CBDC could potentially create financial instability if not properly managed. If users lose confidence in the digital currency, it could lead to a mass exodus from traditional banking systems, causing a liquidity crisis and economic instability.
CBDC relies heavily on technology, which is not immune to cyber-attacks and technical glitches. The risk of system failures, data breaches, and cyber-attacks could undermine the security and stability of the financial system.
Impact on Commercial Banks has also been a concern with CBDC potentially disrupting the business models of commercial banks, as users may prefer to hold their funds in digital currency rather than traditional bank accounts. This could lead to a decrease in deposits, which could negatively impact the lending capabilities of banks. CBDC presents both opportunities and challenges for financial systems, privacy, and economic stability. While it has the potential to increase financial inclusion, reduce transaction costs, and enhance monetary policy transmission, it also raises concerns about privacy, financial stability, and the potential impact on commercial banks. The possibility of the authorities cracking down on political opponents can also become easier with a CBDC, which many activists have raised
