Thursday, May 20, 2021 / 03:46 PM / by Fitch Ratings
/ Header Image Credit: Ecographics
broader adoption of general-purpose central bank digital currencies (CBDCs)
will present authorities with trade-offs between the associated risks and
benefits, says Fitch Ratings.
The key benefits of retail CBDCs lie in their potential to enhance
authority-backed cashless payments with innovations in step with the wider
digitalisation of society. For central banks in some emerging markets, a key
driver for researching CBDCs is the opportunity to bring underbanked
communities into the financial system, and improve the cost, speed and
resilience of payments.
Some advocates see CBDCs as a way of addressing challenges presented by the
declining use of cash. The rise of digital payment systems, which have strong
network effects, can create oligopolies among payment-system providers, often
from the private sector. Widespread use of CBDCs could erode these providers' control over payments-related data and improve central banks' capacity to track
financial transaction data, aiding the prevention of financial crime. However,
if CBDCs offer less privacy than cash, or severely cap amounts held in
electronic wallets, some may be deterred from using them.
A CBDC may open up new policy options, such as transfers into CBDC accounts as
part of disaster relief or stimulus efforts. The programmability of CBDCs
offers further avenues for flexibility - including the potential to influence
social behaviour. However, attaching such features to CBDCs may make them less
attractive to users, relative to cash.
Widespread adoption of CBDCs may be disruptive for financial systems if associated
risks are not managed. These include the potential for funds to move quickly
into CBDC accounts from bank deposits, causing financial disintermediation, and
for heightened cybersecurity threats as more touchpoints are created between
the central bank and the economy.
- Anxiety in the US as China Creates the First Major Digital Currency
- How Central Banks Can Catalyze Financial Inclusion Through Digital
- China Starts Major Trial of State-Run Digital Currency
- Winds of Change: The Case for New Digital Currency
- Barclays Files Two Digital Currency and Blockchain Patents with U.S.
- China Is Developing its Own Digital Currency
- Sweden's Central Bank Considers Issuing A Digital Currency
- What is
Driving the Proliferation of Cryptocurrencies in Nigeria?
- Should One
Invest in Altcoins?
TV to Increase Enlightenment on Blockchain, Crypto Assets in Nigeria
the legality of Non-Fungible Tokens (NFTs)
- CBN vs
Cryptocurrency: The Gold Rush, Time for a Change?