Last week, UK Finance, Britain’s main financial services trade association, responded to the Bank of England’s recent inquiry about the digital pound. He is particularly concerned about the high holding limits currently envisioned for the central bank digital currency (CBDC) project.

The organization that took over the British Bankers Association in 2017 argued that the proposed holding limits of £10 to £20,000 ($13 to $26,000) may present more risk than benefit to the financial system. They also want commercial bank digital currencies (deposit tokens) to be simultaneously supported and even considered as a potential alternative to CBDCs.

Digital pound holding limits

UK Finance’s response covered many topics, but puts the financial and economic stability impacts of holding limits at the top of the list. He is concerned that a flood of money being transferred from banks to CBDCs could affect the ability of banks to make loans. And he wants more clarity on the shares for commercial clients.

“Many members believe that the Bank’s current proposals do not strike the right balance between functionality/usability and mitigation of risks to financial stability and credit creation arising from the introduction of a new direct central bank liability,” the statement reads. document.

The organization believes that a lower range of £3-£5,000 ($3,800-$6,400) would be sufficient to meet consumers’ current and future payment needs. Members agree that finding the “‘right amount’ ‘goldilocks’ zone” can be challenging, particularly during a crisis, but this lower alternative would go a long way to reducing the risk of disintermediation. It is also more in line with the ECB’s digital euro proposal.

deposit tokens

The document broadly supports the central bank’s work to explore digital money opportunities in the UK, but also says that the BoE should not be limited to CBDCs.

“We can envision a future where digital pounds are available to those who want them, but alongside technologically ‘enhanced’ commercial bank money,” he notes, alluding to the potential of commercial bank deposit tokens.

The organization agrees that these alternatives should still be tested, but they envision a “multi-asset infrastructure” that supports various types of electronic money, including central and commercial bank digital currencies and potentially regulated stablecoins.

This idea is largely based on the concept of the Regulated Liability Network (RLN), which proposed a shared network with central bank money, commercial bank money and electronic money. That’s not surprising because the first RLN pilot was in the UK earlier this year. Later this week, the New York Federal Reserve will share the results of its RLN proof of concept.

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