Central Bank Digital Currency - Question

– in the House of Lords at 12:54 pm on 13th April 2021.

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Photo of Lord Sarfraz Lord Sarfraz Conservative 12:54 pm, 13th April 2021

To ask Her Majesty’s Government what assessment they have made of a Central Bank Digital Currency.

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, the UK, like many countries globally, is actively exploring the potential role of central bank digital currencies. A CBDC would be an electronic form of central bank money, like cash, that households and businesses could use to make payments. The Bank of England published a discussion paper in March 2020 exploring the possibility of a UK CBDC, and the Treasury and the Bank are working together to consider next steps.

Photo of Lord Sarfraz Lord Sarfraz Conservative

My Lords, I thank the Minister for her Answer. Does she agree that a digital pound held in an electronic wallet could considerably reduce bank fees and currency risks for businesses buying and selling overseas and, when combined with smart contracts, reduce friction in trade finance? Does she agree that a digital pound could benefit individuals who suffer from exchange losses in foreign transaction fees when travelling?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

I agree with my noble friend that CBDCs could present a number of benefits, which the Treasury and the Bank are continuing to explore. These may include supporting resilience, innovation, competition and payments, potentially including reducing costs in domestic and international payments. The Bank of England’s paper last year noted the potential for CBDCs to enable smart contracts, including in relation to the supply and delivery of goods.

Photo of Lord Vaizey of Didcot Lord Vaizey of Didcot Conservative

My Lords, while we have been issuing discussion papers, for the last seven years the Chinese have been undertaking practical tests of a digital currency in retail and wholesale markets. When will the Bank of England and the Government start to undertake practical tests for a pound sterling digital currency?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, the Treasury continues work with the Bank of England on its discussion paper and next steps for that. The Bank has also been part of a coalition of central banks, including the Federal Reserve and the European Central Bank, in considering the roles of CBDCs internationally and the importance of cross-border interoperability of such CBDCs.

Photo of Lord Foulkes of Cumnock Lord Foulkes of Cumnock Labour

My Lords, further to the question asked by the noble Lord, Lord Vaizey, what specifically is being done to learn from experience in other countries, including the digital yuan in China, the e-krona in Sweden and in particular the sand dollar in the Bahamas, which is already in operation?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

The noble Lord is correct that a number of countries have launched pilots of central bank digital currencies, which the UK is looking at closely. As I noted previously, the UK is also leading international work to ensure that there are standards for CBDCs and that they are interoperable across different jurisdictions.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy)

My Lords, I shall bring this down to ground a little. A central bank digital currency paves the way for the abolition of cash, but the market is already doing that: across the country, increasingly over the past year, many businesses refuse to accept cash or cheques and accept only digital—either a card or an app. There are about 5 million people in this country who are excluded because they are cash-dependent. What are the Government doing to ring-fence those people to make sure that they can continue to participate in the economy? What will they do as this move to digital gets even faster?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, I reassure the noble Lord that the Government recognise that cash remains important to millions of people across the UK and have committed to legislating to protect access to cash in this country.

Photo of Lord Balfe Lord Balfe Conservative

My Lords, while I can understand that a CBDC will help business if it can be got off the ground, can the Government assure us that the status and backing of this currency will be as firm as the real currency that we currently enjoy?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

I can absolutely reassure my noble friend on that point. A central bank digital currency would need to be a risk-free currency backed by the central bank, and it would need to coexist with and complement existing forms of money.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence), Shadow Spokesperson (Treasury), Shadow Minister (Transport)

My Lords, I had not heard of CBDCs until I was faced with this Question. The briefing paper by the Bank of England in March 2020 is particularly useful. It is clear that the system very much depends on the successful integrity of information technology. A successful cyberattack on the systems would be catastrophic. What additional measures are the Government taking to complement the work of the Bank of England and the Treasury to ensure that any systems introduced are cyber robust?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, the Government have a leading cybersecurity programme. In addition to that, the Bank of England has committed to publishing a further paper this year on the potential financial stability impacts of digital currencies because, as the noble Lord notes, as well as the opportunities presented by these currencies there are risks that they could pose.

Photo of Lord Moynihan Lord Moynihan Conservative

My Lords, CBDCs are here to stay and more than 60 central banks are studying how they could affect the role of traditional forms of money through proofs of concept. Some 36 central banks are exploring both retail and wholesale CBDCs. Will the Minister prioritise government work into how the retail use case can improve payment safety, increase domestic payment efficiency and ensure financial stability and inclusion in the metaverse?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

I reassure my noble friend that that is exactly what the Government’s work with the Bank of England is seeking to do. It is focusing on the retail and consumer side of a central bank digital currency rather than wholesale.

Photo of Lord Fowler Lord Fowler Chair, House of Lords Commission, Lord Speaker, Chair, House of Lords Commission

I call the noble Lord, Lord Desai. No? I call the noble Lord, Lord Moylan.

Photo of Lord Moylan Lord Moylan Conservative

My Lords, it is no surprise that China is a leader in central bank digital currency because essentially this involves us all having a bank account with the central bank over which the Government can, without the most rigorous safeguards, maintain panoptic surveillance. In China it is used as a means of social and economic control. Will my noble friend agree that the British people, jealous of their liberties, should be very anxious about the introduction of such a project here?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

I agree with my noble friend on the importance of privacy considerations in these matters. We know that more than 80% of central banks globally are doing some form of work on CBDCs and different nations will take different approaches. In the UK, Her Majesty’s Treasury and the Bank of England are looking at all the public policy considerations of a CBDC very carefully, including privacy.

Photo of Baroness Gardner of Parkes Baroness Gardner of Parkes Conservative

My Lords, can the Minister comment on the extent to which the increased use of digital payments during the pandemic is expected to accelerate the development of central bank digital currency in the UK?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

The increase in digital payments during the pandemic has happened without the introduction of a central bank digital currency. However, the Government continue to look at the potential benefits of introducing a digital currency which may improve the resilience and innovation of payment systems within the UK.

Photo of Lord Fowler Lord Fowler Chair, House of Lords Commission, Lord Speaker, Chair, House of Lords Commission

Is the noble Lord, Lord Desai, there? He is not. All the supplementary questions have now been asked and we move to the next Question.