The UK Treasury has advised lower limits on retail purchases of Bank of England digital pounds in a bid to avoid bank runs.
The suggestion, made by policy advisor of the Treasury, was part of a much larger review into the technology implications of central bank digital currencies, or CBDCs. The recommendation comes as the Bank of England eyes the launch of its CBDC, dubbed the available digital currency (AvDC), this spring.
The Treasury’s proposal would cap each UK consumer’s ability to buy digital pounds at lower levels to protect the banking system from potential mass withdrawals. The idea has generated mixed opinion from experts, some of whom believe it is needed to ensure the money supply remains stable and to protect banks from customer runs. Others, however, think such a cap could lead to banking instability if banks become over-leveraged due to customers withdrawing their funds in smaller amounts.
More broadly, the UK Treasury’s review’s purpose is to examine how regulators and policymakers can ensure CBDCs are used securely, promote financial inclusion, and bolster the UK’s digital economy. The report will also consider the role of private digital currency companies in support of economic growth.