Bank of America says “digital currencies seem inevitable,” adding that central bank digital currencies (CBDCs) and stablecoins are “a natural evolution of today’s monetary and payment systems.” The bank expects “private sector beneficiaries to emerge at all phases of CBDC implementation.”
Bank of America on the future of money and payments
The Bank of America (BOA) Global Research Team released a report on global cryptocurrencies, digital assets, and central bank digital currencies (CBDCs) earlier this week. The bank wrote:
Digital currencies seem inevitable. We view distributed ledgers and digital currencies, such as CBDCs and stablecoins, as a natural evolution of current monetary and payment systems.
“Our view is that CBDCs that leverage distributed ledger technology have the potential to revolutionize global financial systems and could be the most significant technological advancement in the history of money,” BOA described. .
The report explains that there are currently 114 central banks exploring CBDCs, representing 58% of the world’s countries and more than 95% of global GDP. He also notes that central bank digital currencies “do not change the definition of money, but will likely change how and when value is transferred over the next 15 years.”
According to Bank of America, “CBDC issuances by central banks seem inevitable for three reasons.” First, they “can increase the efficiency of cross-border and domestic payments and transfers”. In addition, they “can reduce the risk of loss of central bank monetary control” and “increase financial inclusion”.
The private sector is essential to the development of CBDCs
The Bank of America report adds that “the private sector is critical to the development and issuance of CBDCs,” stating:
Central banks and governments cannot build new financial systems based on distributed ledger technology alone and have indicated that they will leverage the private sector to drive innovation in digital assets. We expect private sector beneficiaries to emerge at all phases of CBDC implementation.
For example, the report notes that governments can “award contracts to payment and consulting companies in exchange for expertise.”
Bank of America also highlighted some risks. “The issuance and adoption of CBDCs could also increase the frequency of bank runs if not properly designed,” the bank warned, adding that “During times of stress in the banking system, people could withdraw deposits and exchange them for CBDCs, given that there is no credit or liquidity risk if distributed with the direct and hybrid approaches, increasing financial stability risks.
However, central banks could mitigate this risk by introducing CBDC holding limits, either temporarily or permanently.
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