The Bank of America anticipates that private sector benefits will emerge throughout all phases of CBDC implementation. Earlier this week, the worldwide research team at Bank of America (BOA) released a study on global cryptocurrencies, digital assets, and central bank digital currencies (CBDCs). According to the bank, digital currencies look to be unavoidable. Distributed ledgers and digital currencies like CBDCs and stablecoins, in our opinion, are a natural extension of today’s monetary and payment systems.
“In our opinion, CBDCs that use distributed ledger technology have the potential to change global financial institutions and may be the most significant technical innovation in the history of money,” said BOA.
According to the research, 114 central banks are now investigating CBDCs, representing 58% of the world’s nations and more than 95% of global GDP. It also mentions that while central bank digital currencies do not alter the meaning of money, they will most likely alter how and when value is exchanged over the next 15 years.
CBDC issuance by central banks is unavoidable, according to Bank of America, for three reasons. For starters, they may improve the efficiency of cross-border and domestic payments and transfers. Furthermore, they “may reduce the danger of central banks losing monetary control” and “promote financial inclusiveness.“
Central banks and governments cannot create new financial systems solely on distributed ledger technology, and they have stated that they will rely on the private sector to drive digital asset innovation. We anticipate that private sector benefits will emerge during the CBDC implementation process.
Bank of America also identified certain dangers. CBDC issuance and adoption may increase the frequency of bank runs if not properly designed, the bank warned, adding that during times of stress in the banking system, people may withdraw deposits and exchange them for CBDCs because there is no credit or liquidity risk if distributed through the direct and hybrid approaches, increasing financial stability risks.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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