The Institute of Chartered Accountants in England and Wales (ICAEW) has offered its response to the UK’s consultation on the digital pound this week. While appreciating the consultation’s intent to modernize government currency, the ICAEW has voiced apprehensions about potential consequences associated with the introduction of a central bank digital currency (CBDC).
Of significant concern is the possibility of deposit flight from traditional banks to a CBDC, which could lead to amplified lending costs for both consumers and businesses. The ICAEW takes this concern further by noting that this shift away from transactional banking could incentivize banks to implement cost-cutting measures and explore alternative revenue streams. This, in turn, could result in branch closures and reduced access to physical cash. The potential for added fees on bank accounts is also highlighted, which might inadvertently impact marginalized and higher-risk demographics, ultimately affecting financial inclusivity.
As its initial recommendation, the ICAEW urges a comprehensive evaluation of payment value chains to ascertain the multifaceted effects of introducing a digital pound, encompassing both positive and negative dimensions.
The second recommendation centers on achieving seamless interoperability and minimizing possible hindrances. The ICAEW underscores that various design choices ripple through the ecosystem. For instance, prohibiting corporations from holding CBDC balances to safeguard bank deposits might hinder merchants from facilitating refunds, potentially slowing down widespread adoption. However, the organization acknowledges the potential for instant transfers from merchant bank accounts into CBDC to address this issue.
An example of the third recommendation pertains to regulatory frameworks and consumer safeguards. The ICAEW highlights the existing protections that contemporary payment systems offer, which could be absent in the realm of CBDCs without users recognizing the change. Presently, users possess the ability to contest charges and block merchant card fees via their banks, alongside recourse for fraud-related issues. While a CBDC might offer a secure store of value, without explicit legal measures, these safeguards might not be extended to a digital pound.
In essence, the ICAEW’s response to the digital pound consultation underscores the necessity for a comprehensive analysis of potential ramifications, fostering interoperability to mitigate disruptions, and implementing a regulatory framework to ensure consumer protection. These considerations are pivotal as the UK contemplates the future trajectory of its currency landscape.
