Bank of America believes that central bank digital currencies are the evolution of today’s currency world. They hope for a U.S. central bank digital currency to be out as soon as 2025.
In a report on Monday, they mentioned that it would be somewhat different than digital money that is available to anyone. It would be a liability to the federal reserve. According to the bank, this meant there was no risk or credit of liquidity in terms of the digital currency.
What is a CBDC?
A CBDC is a digital representation of a fiat currency, such as the pound, euro, or dollar. They vary from digital assets like Bitcoin in that, while they may use a sort of blockchain network, they usually are not housed on public or permissionless networks and are backed by a central bank. Countries all across the globe are investigating the advantages of creating their digital currency.
Countries such as China and the Bahamas are already in the testing stages of a CBDC project. In the U.S., however, they are still researching the risks and benefits of doing so. The bank noted in the report that it could include the increase of liquidity risk in the financial system if ordinary banks turn into CBDC. This would lead to a cash shortage because customers regularly turn their cash digital. The bank mentioned this could also decrease “the deficiency of monetary policy implementation” in their words.
According to the bank, the U.S. should work on making the CBDC “privacy-protected,” intermediated (meaning that the private sector would have to supply items to carry them, such as wallets), and transferable. To avoid criminal activity, a CBDC in the United States needs to be identity validated, according to the Bank of America.
The report concluded that China CBDC has the most considerable potential for adoption in the next few years.
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