Source · Select Committees · Treasury Committee
Recommendation 3
3
Rejected
Paragraph: 38
Undertake further analysis on monetary policy impact of paying interest on digital pound.
Recommendation
We recommend that the Bank of England and Treasury undertake further analysis on the monetary policy impact of paying interest on the digital pound, and in the meantime ensure that their design work does not preclude the possibility of paying interest on the digital pound.
Government Response Summary
The government rejects paying interest on the digital pound at launch, stating it is intended as a payment means and would be unremunerated like cash, though any future decision to revisit this would involve a full consultation.
Paragraph Reference:
38
Government Response
Rejected
HM Government
Rejected
A digital pound would be intended as a means of payment, rather than a savings product, meaning it would be unremunerated like cash. A non-remunerated digital pound would be less likely to compete with bank accounts as a way to hold savings, reducing the potential impacts on the banking sector–a concern that was raised by the Committee. Remunerating the digital pound, either with positive or negative interest rates, to make monetary policy more effective is not a motivation for issuing the digital pound, which is aligned with the approach being taken by most other jurisdictions internationally. Monetary policy is mainly implemented by setting the interest rate–the Bank Rate–on deposits held at the Bank overnight by commercial banks and other eligible firms. The Bank has undertaken analysis on the possible impacts of a digital pound on monetary policy, and in the Consultation Paper on the digital pound the Bank acknowledged that a digital pound that pays interest could directly influence the pass-through of Bank Rate changes to banks’ savings rates for retail customers, therefore impacting monetary policy. However, there is uncertainty about the knock-on effects of this. For these reasons, a digital pound would be unremunerated at launch. Any decision to revisit the approach to remuneration after the digital pound is introduced would be preceded by a review with full consultation.