Bank of America says that “digital currencies seem inevitable,” adding that central bank digital currencies (CBDCs) and stablecoins are “a natural evolution of current monetary and payment systems.” The bank expects “private sector beneficiaries to emerge in 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 see 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 leveraging distributed ledger technology have the potential to revolutionize global financial systems and may be the most significant technological breakthrough in the history of money,” BOA described.
The report explains that there are currently 114 central banks exploring CBDCs, representing 58% of countries globally and more than 95% of global GDP. He also notes that central bank digital currencies “don’t change the definition of money, but they will likely change how and when value is transferred in 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 domestic and international payments and transfers.” In addition, “they can decrease the risk of central banks losing monetary control” and “increase financial inclusion.”
Private sector critical for CBDC development
The Bank of America report adds that “the private sector is critical to the development and issuance of CBDCs,” explaining:
Central banks and governments cannot build new financial systems based on distributed ledger technology alone and have indicated they will leverage the private sector to drive digital asset innovation. We expect private sector beneficiaries to emerge in all phases of CBDC implementation.
For example, the report notes that governments can “award contracts to payment and consultancy firms in exchange for expertise.”
Bank of America also noted some risks. “CBDC issuance and adoption could also increase the frequency of bank runs if not designed properly,” the bank warned, adding that “during times of stress in the banking system, people could withdraw deposits and exchange them for CBDCs, since there is no credit or liquidity risk if it is distributed with the direct and hybrid approaches, increasing the risks of financial stability”. The report concludes:
However, central banks could mitigate this risk by introducing CBDC holding limits, either temporarily or permanently.
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