In a research study published Wednesday, Bank of America (BofA) termed central bank digital currencies “a considerably more effective payment mechanism than cash.”
CBDCs might “completely replace cash in the (far) future,” according to the Charlotte, N.C.-based bank, which is the second-largest in the United States by total assets.
The publication of the report coincides with a surge in interest among central banks. According to a May survey by Bison Trails, a blockchain infrastructure platform, around 80% of central banks are looking into CBDC use cases, with 40% currently running proof-of-concept initiatives.
CBDC adoption is “inevitable,” according to Bank of America, noting the dwindling importance of cash, the private sector’s rising usage of blockchain technology, the loss of currency control, and CBDCs’ ability to enhance the economy. It also stated that central banks that did not issue their own digital currencies could witness a decrease in demand, “substantially in some cases,” as well as a diminished “global role” for their currencies.
Concerns that a CBDC would compete with bank deposits, cause bank runs, and jeopardize individual security were addressed in the document, which emphasized central banks’ “extreme caution.”
CBDCs qualify as money, according to the study, “by allowing for the storage of value and serving as a unit of account and means of exchange,” distinguishing them from cryptocurrencies that “do not meet these characteristics.” “Because they are traded, they might be considered an asset class,” according to the report.
CBDCs, according to Bank of America, might reduce the need for stablecoins, which could “present a major financial stability risk during times of market stress when there may be a crypto to fiat currency run,” according to the bank.
Bank of America has increased its commitment to provide more bitcoin services and investigate the potential of cryptocurrencies in recent months.
According to a memo received by us earlier this month, the bank has formed a team dedicated to exploring cryptocurrencies and associated technology. Separately, it has given some clients permission to trade bitcoin (BTC, +0.63% ) futures, and its prime brokerage unit has begun clearing and settling cryptocurrency exchange-traded products (ETPs) for hedge funds in Europe.