The benefits of a so-called digital pound are still unclear and if it is launched there must be systems in place to protect cash access and privacy, a group of MPs has said.
The Treasury Select Committee said that the Bank of England and the Treasury should keep exploring the potential of a central bank digital currency (CBDC).
The Bank and Treasury have been looking into the option of a digital pound for years.
In February they launched a consultation and are currently designing what such a system could look like.
The design phase is expected to run until the middle of the decade and the digital pound could be launched before 2030.
MPs on the committee said there are “some potential benefits” of the system, including that it could help create innovation in payments, and help the UK’s global competitiveness.
But they warned that none of these upsides are guaranteed, and pointed to several potential risks should a digital pound be launched.
“The extent of these benefits is unclear, however. Nor is it yet clear that a digital pound is the only (or best) means of achieving them,” they said in a report published on Saturday.
The report warned that the new currency could be very traceable and give authorities access to a lot of new data about people.
“Although the Bank of England and Government state that it is not their intention to be able to access users’ data, it is conceivable that they may in future be tempted to try to make use of such a powerful source of information,” the report said.
“It is important to guard against this risk in the fundamental design of the digital pound.”
The MPs said they were also concerned that private businesses could misuse customer data.
They also warned that the introduction of a digital pound could end up speeding up the demise of physical cash.
Bank branches across the UK have been closing down in their hundreds in recent years, making it more difficult for people to access cash and banking services.
Around 130 countries around the world are exploring the potential of CBDCs, according to the Atlantic Council think tank.
So far 11 countries have launched one and 21 are piloting a digital currency.
The committee said: “While there are some potential benefits, their extent is unclear and there are significant risks and challenges to be worked through, particularly in relation to privacy and financial stability.
“It is not clear to us at this stage whether the benefits are likely to outweigh these risks.
“Nevertheless, we support the Bank of England and Treasury undertaking further consultative work on the design of a digital pound to enable it to be launched if benefits increase and risks to privacy and financial stability are mitigated.”
