Last week, the International Regulatory Strategy Group (IRSG), a joint venture between TheCityUK and the City of London Corporation, responded to the Bank of England’s (BoE) consultation paper on the case for a central bank digital currency (CBDC). The industry advocacy group is generally supportive of the central bank’s exploratory work but remains unclear on the need for a retail digital pound, citing concerns about the risks to financial stability.
IRSG’s response to the CBDC consultation
Earlier this year, the BoE launched a consultation paper calling for feedback on a retail digital pound. The central bank has said that a digital pound is more likely than not, but many politicians and businesses are still skeptical.
The IRSG response is a case in point. The group argues that the digital pound still lacks a clear use case and that further consideration is required on the regulatory framework underpinning its distribution model.
It notes that financial stability concerns have not been properly addressed and that the risk of “exacerbating a stress situation with a flight to safety” remains high. The UK is planning for holding limits of around £20,000 ($24,500), much higher than those of other jurisdictions. Hence many are concerned about the potential impact on bank deposits and the knock on effect on lending.
As for the proposed distribution model, the IRSG is worried about the participation of non bank payment providers.
“The principles of same activity, same risk and same regulation should be applied consistently in order to mitigate any negative effects on the systemic payments market infrastructure,” the communication reads.
The group argues that further clarity is needed on the specific role of banks and other financial services providers.
Keen on wholesale CBDC
In contrast, the IRSG strongly encourages the central bank to continue its work on a wholesale CBDC.
Meanwhile, the Bank of England and BIS published a report on project Rosalind, which trialed using APIs to integrate payment systems with CBDCs.