New Legislation Will be Needed to Accommodate the Digital pound
May 24, 2023
Some weeks ago we covered the plans for a Central Bank Digital Currency (CBDC) in the UK. The timeline and hopes for the launch of a digital pound.
Recently, more information has come to light – namely the requirements for such a currency to work. Lawyers from Keystone Law and Simmons & Simmons sat down with CoinDesk to talk about this topic.
The UK treasury and The Bank of England have been collecting data in the form of public feedback on their plans for the digital pound. The feedback seems to focus on whether or not UK citizens consider it necessary at all, and should the answer be positive, new legislation will need to be put in place.
New legislation will be needed to lay out the characteristics of a digital pound and current data, privacy and anti-money laundering rules should be amended to accommodate such a currency.
This year, the European Union is set to publish a bill with the layout of what characteristics digital currencies need to meet. This will “tackle the finer points of digital euro applications and the technology that will support one.”
Both the UK and the EU have set a goal to create new regulations to accommodate a new currency.
The plans for a digital pound have moved to phase two: the modeling of the currency in both “both policy and technology terms.” According to Louise Abbott, a partner at Keystone Law, the legal framework would need to cover both security and ownership issues.
There is also the question of the property law status of token-based CBDC – for example it will be extremely important to determine whether such CBDC can be lent by its owner to a commercial bank … can a CBDC token be deposited into a bank account, and who owns that?
Abbott further elaborated that while it is not necessary for all legislation to be brand new, the existing laws need to be overhauled to accommodate the CBDC.
According to George Morris, partner at Simmons & Simmons, the UK has privacy and data laws which may need to be amended to accommodate the digital pound.
At a debate on this past February 7th, the question emerged of how exactly the Treasury plans to “ensure privacy and liberty” if the digital pound is issued.
“It is right that we debate the balance between freedoms and our duty to protect citizens from fraud and other things, that this house, from time to time, will decide to justify the piercing of that veil of privacy.
The plan is to rely on private firms to be the digital currency’s wallet providers. These firms will have to adhere and comply with data protection laws, which should encourage firms to use the data fairly.
The Data Protection Act of 2018 states that law enforcement can access people’s personal data on commercial bank accounts on a lawful basis. This will transfer to the digital pound wallet providers, too. Though the issue of the ease of tracking digital currency vs physical money rises up.
According to Morris, amendments will have to be made to this act in relation to what the government “can or can’t do with respect to data relating to the digital pound because only when you start seeing those kinds of specific changes, will you get people comfortable with using it.”
Many changes will have to be made to accommodate a digital pound. This will no doubt be a challenge with many hurdles to get over, but the fact is, the world is moving towards digital everything – even currency – and making sure people’s data is secure is imperative.
Want to learn more? Check out Payment Cards and Mobile’s full write-up here.
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