In a bid to mitigate panic and potential deposit flight, UK Finance, a prominent finance membership organization in the UK, has put forth a recommendation to the Bank of England concerning the issuance of a digital pound. The organization suggests that individual holdings of the proposed central bank digital currency (CBDC) should be capped at £5,000 ($6,350).
The digital pound, also known as "britcoin," is the UK's response to issuing a secure form of digital cash, aimed at discouraging the use of private stablecoins such as Facebook's ill-fated Libra project. However, concerns have been raised by UK Finance, which represents over 300 firms in the financial sector, about the limits set by the Bank of England regarding the maximum amount individuals should be permitted to hold in the proposed currency.
While the central bank proposed a temporary cap of £10,000 to £20,000 ($12,700 to $25,400), UK Finance has recommended a significantly lower limit of £5,000 ($6,350). The organization believes that such a cap will help avoid panic during times of financial stress and potential deposit flight.
Furthermore, UK Finance expressed the view that a digital pound has the potential to exacerbate deposit flight under certain circumstances. It emphasized the need for UK authorities to clearly define the objectives and purpose of the digital pound and how it fits into the overall market for digital central bank money.
The issuance of a central bank digital currency is currently under consideration by the UK Treasury and the central bank. A final decision on the matter is expected by 2025. As the debate continues, concerns and recommendations from industry experts like UK Finance will play a crucial role in shaping the future of the digital pound.
The introduction of a digital pound is a significant development that could impact the financial landscape in the UK. As the consultation period progresses, it remains to be seen how the recommendations put forth by UK Finance and other stakeholders will be taken into account and whether the proposed £5,000 limit will be adopted to ensure a smooth transition to a digital pound while maintaining financial stability.
