The creation of an official UK digital currency could lead to a run on the banks during economic crises, the Lords Economic Affairs Committee has said.
Laith Khalaf, head of investment analysis at AJ Bell, said: “It seems the Lords Economic Affairs Committee is not too keen on the idea of Britcoin, but that won’t stop the Bank of England looking into it. The Lords committee is right to highlight the risks of introducing a digital currency, but if the Bank of England doesn’t create a digital pound, the private sector might.
“The best known cryptocurrencies like Bitcoinare currently too volatile to provide a functional means of exchange, but more recently developed stable coins, pegged to traditional currencies, could open up a new financial frontier. In theory that might wrestle some control of the UK monetary system away from the central bank, which could pose its own dangers. Not to mention the risk that other countries which introduce digital currencies could find themselves with a leg up in the technological arms race.
“Britcoin is best thought of as a digital version of a bank note, which is a token that carries a certain value in pounds sterling. People don’t hold large sums in paper money because it’s more convenient and secure to hold cash with commercial banks, but unlike a stack of tenners, Britcoin would be both easy to manage and safe to store. That’s because rather than residing in your wallet or under a mattress, digital pounds would sit in an account with the Bank of England.”