Bank of America: ‘Digital Currencies Appear Inevitable’

Bank of America says “digital currencies appear inevitable,” including that central financial institution digital currencies (CBDCs) and stablecoins are “a natural evolution of today’s monetary and payment systems.” The financial institution expects “private sector beneficiaries to emerge in all phases of CBDC implementation.”

Bank of America on Future of Money and Payments

Bank of America (BOA)’s world analysis group printed a report on world cryptocurrencies, digital property, and central financial institution digital currencies (CBDCs) earlier this week. The financial institution wrote:

Digital currencies seem inevitable. We view distributed ledgers and digital currencies, comparable to CBDCs and stablecoins, as a pure evolution of immediately’s financial and fee methods.

“Our view is CBDCs that leverage distributed ledger technology have the potential to revolutionize global financial systems and may be the most significant technological advancement in the history of money,” BOA described.

The report explains that there are presently 114 central banks exploring CBDCs, representing 58% of nations globally and over 95% of world GDP. It additionally notes that central financial institution 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 appear inevitable for three reasons.” Firstly, they “may increase efficiencies for cross-border and domestic payments and transfers.” In addition, they “may decrease central banks’ risk of losing monetary control” and “increase financial inclusion.”

Private Sector Critical for CBDC Development

The Bank of America report provides that “the private sector is critical for CBDC development and issuance,” elaborating:

Central banks and governments can’t construct new monetary methods based mostly on distributed ledger know-how alone and have indicated that they are going to leverage the non-public sector to drive digital asset innovation. We count on non-public sector beneficiaries to emerge in all phases of CBDC implementation.

For instance, the report notes that governments could “award contracts to payments and consulting companies in exchange for expertise.”

Bank of America additionally identified some dangers. “CBDC issuance and adoption could also increase the frequency of bank runs if not properly designed,” the financial institution warned, including 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.” The report concludes:

However, central banks may mitigate this danger by introducing CBDC holding limits, both on a brief or everlasting foundation.

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