The introduction of a Central Bank Digital Currency (CBDC) holds potential advantages but also harbours several possible risks, particularly for countries like the UK considering its implementation. Concerns include financial stability, as a swift shift of money from traditional banks to a CBDC during financial crises could incite bank runs. Also, as a digital entity, CBDCs are naturally exposed to cybersecurity threats, risking significant financial losses if the system were compromised. Additionally, privacy issues arise as a CBDC could provide the central bank, or possibly the government, with expansive data about financial transactions, creating a risk for potential misuse. Implementing a CBDC also demands substantial technical infrastructure and expertise, leading to high costs associated with system development, maintenance, and upgrades.

While a CBDC might enhance financial inclusion, it could inadvertently exclude those lacking access to digital technology or the internet, typically the unbanked or underbanked individuals. Moreover, the introduction of a CBDC could alter monetary policy dynamics; if a CBDC were to pay interest, this could affect the central bank’s control over short-term interest rates. The arrival of a CBDC could also disrupt existing financial intermediaries, such as commercial banks, and potentially undermine their business models if a significant portion of deposits shifted to the CBDC. 

Lastly, the unilateral introduction of a CBDC could have global financial implications, potentially affecting exchange rates and prompting destabilising capital flows.