UK Treasury Advises Lower Limits on Retail Digital Pound Over Fears of Bank Runs

The UK Treasury has advised setting lower limits on retail deposits of the planned digital pound currency in order to guard against possible bank runs. According to reports, the Treasury believes that due to the convenience of having digital money and the speed with which it can be transferred, some people may move large amounts of money into digital accounts and then execute a “run” at the last minute, leaving the system without enough money to pay out everyone.

The Treasury has proposed lowering the maximum limit for depot Digital Pounds to below the level of typically held in traditional retail accounts. This would ensure that retail customers could not possess a large enough level of digital money to initiate a bank run.

The Treasury has also suggested that the proposed digital pound currency should not be considered a “retail banking product”, meaning that it would be operated outside of the purview of the FCA or Bank of England supervision. This would protect the digital currency from regulatory requirements and oversight.

The Treasury’s proposal follows other steps taken by the UK government to regulate digital currencies. Last month, the Bank of England announced plans to launch its own digital currency – the so-called central bank digital currency (CBDC). The initiative is designed to help the Bank of England further understand the implications of distributed ledger technology and provide additional assurance to customers using digital money.