This week the Institute of Chartered Accountants in England and Wales (ICAEW) responded to the UK’s digital pound consultation. It welcomed the consultation and acknowledged the objective of providing government money in the digital age. However, the ICAEW warns of numerous potential consequences of a central bank digital currency (CBDC).
Worldwide, there have been worries about deposit flight from banks to a CBDC, potentially resulting in higher lending costs to consumers and businesses. The ICAEW takes that a step further by observing that the erosion of transactional banking will encourage banks to cut costs and seek other sources of revenue.
One of the reactions could be branch closures, which in turn will reduce the availability of cash. Another is the potential for additional charges on bank account holders. The net effect could be to marginalize low profit and high risk groups, impacting financial inclusion.
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