BoE CBDC Consultation Response; Holding Pattern

BoE and HM Treasury response to digital pound consultation is out. CBDCs (central bank digital currencies) continue to be a divisive issue and the only salient points in the response appear to be:

• Work would be done to protect users’ privacy, this is part of the work on broader payments innovation in the UK and that users would retain control over their assets.
• Work will continue but no decision has yet been made and, by implication, further consultation(s) may be likely. Cash will still be protected under any circumstances.
• Importantly, this phrase is still in the release “would be restrictions, at least initially, on how much an individual or business could hold”. The risk would be, analogous to capital markets and swap spreads, at times of stress, deposits would rapidly flow out of the commercial banking system and into any “digital pound”. Silicon Valley Bank last year showed how fast this can happen even without a CBDC, the risk is that its introduction competes with the whole nature of a fractional banking system.