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- 1 Recently, the CBDC initiative in the United Kingdom saw development.
- 2 The legislators have urged both the Bank of England and the Treasury to conduct an in-depth analysis of the monetary policy implications of allowing the digital pound to earn interest.
Central Bank Digital Currency (CBDC) is a form of virtual currency authorized by government agencies and will have the features of traditional crypto assets. Countries all around the world are working towards developing the infrastructure dedicated to the new age currencies and taking advantage. Recently, the CBDC initiative in the United Kingdom saw development.
In their report, lawmakers from the Treasury Committee of the House of Commons emphasized the importance of addressing potential issues surrounding the digital pound, particularly regarding the earning of interest. The UK government’s clear stance that the digital pound, akin to cash, would not accrue interest has drawn scrutiny.
The legislators have urged both the Bank of England and the Treasury to conduct an in-depth analysis of the monetary policy implications of allowing the digital pound to earn interest. This recommendation underscores the need for a comprehensive understanding of the potential impacts on the broader financial landscape before finalizing the design and operational aspects of the digital pound.
Furthermore, lawmakers expressed reservations about the proposed holding limit of £10,000-£20,000, emphasizing the need for a cautious approach to mitigate the risk of significant outflows from traditional bank deposits to digital pounds.
By proposing a lower limit, aligned with the EU’s European Central Bank’s recommendation of a €3,000 cap for the digital euro, UK legislators aim to strike a balance. This approach aims to reduce potential disruptions to the existing financial system while allowing flexibility for future adjustments based on evolving market dynamics.
As the global landscape witnesses a growing interest in central bank digital currencies (CBDCs) as a means to enhance payment systems and embrace the digital era, the UK’s deliberations underscore the complexities involved in balancing innovation with financial stability.
The nuanced recommendations from the Treasury Committee reflect a forward-looking perspective, acknowledging the potential of CBDCs while cautiously navigating the intricate policy decisions required for their successful integration into the financial ecosystem.
The evolving dialogue on CBDCs further emphasizes the need for ongoing collaboration between regulators, financial institutions, and the broader public to shape a digital financial future that addresses the diverse needs of various stakeholders.
CBDC Can Solve the Financial Inclusion Issue
Ripple’s Vice President of Central Bank Engagement, James Wallis, sees Central Bank Digital Currencies (CBDCs) as a crucial solution to address global financial inclusion challenges. In a recent “Crypto in One Minute” video on Ripple’s official YouTube channel, Wallis emphasized the role CBDCs can play in extending financial services to underserved populations.
He pointed out that individuals in the low-income bracket often lack access to basic financial services, such as borrowing money or making simple payments, due to their limited interaction with traditional banking systems.
Wallis identified the key barriers to financial inclusion, including low income, absence of credit history, and reluctance from commercial banks to engage with individuals from lower-income tiers. He proposed that CBDCs offer a cost-effective solution to bridge this gap, enabling financial services at a significantly lower cost compared to traditional methods.
By facilitating simple transactions, CBDCs could help individuals establish credit history, paving the way for them to access loans for business growth or personal use. Wallis concluded that CBDCs have the potential to address longstanding issues related to financial inclusion globally.
Mr. Pratik chadhokar is an Indian Forex, Cryptocurrencies and Financial Market Advisor and analyst with a background in IT and Financial market Strategist. He specialises in market strategies and technical analysis and has spent over a year as a financial markets contributor and observer. He possesses strong technical analytical skills and is well known for his entertaining and informative analysis of the Financial markets.
