A new study by the United States Treasury revealed that the introduction of central bank digital currency (CBDC) could destabilize the banking sector and also have the potential to improve household welfare.
Earlier today, US lawmakers expressed their displeasure with developing a central bank digital currency (CBDC). In new billThe board noted that the Fed does not have the authority to develop and issue a central bank digital currency, as it could affect the privacy protection of digital asset investors.
Impact of CBDC on Banks
Based on According to the Office of Financial Research, the effects of this central bank digital currency can be drastic due to the current economic situation, and introducing a central bank digital currency can cause instability and reduce bank equity.
The research board believes that the creation of a CBDC or stablecoin in the economy can improve the competition between digital currencies and bank deposits. This may cause banks to increase deposit interest rates to reduce the spread between deposit and credit transactions.
However, the result of this action will be reduced efforts for banks. Normally, banks rely on deposits to finance their lending activities, and paying higher rates on deposits can lead to a credit crunch and increase systemic risk.
However, there is a possibility that the event will be beneficial for the household. According to research, there will be a slight gain of up to 2% for consumers amid the competition between digital currencies and banks. It also notes that the benefits may not last if the competition chooses digital currency, as households will face financial instability.
System Volatility May Decrease
The study also shows that in addition to destabilizing banks and improving household welfare, introducing a central bank digital currency can reduce the volatility of the financial system. The possibility of this depends on the volatility of asset prices that have decreased after the integration of CBDC into the economy.
He added that financial markets will improve due to higher prices and reduced volatility. However, due to the more significant risk of inadequate capital levels in the banking sector, the financial industry may suffer.
The study from the Office of Financial Research comes as the Economic Report of the President arrives from the White House.
At report expressed concern about introducing CBDC in the banking system. He added that further development and research is needed to identify and address the potential financial and economic risks of CBDCs.
The US Treasury report also suggests that CBDC designs should complement, rather than replace, existing payment systems. It further noted that appropriate safeguards should be put in place to reduce the risk of financial instability. So, it is important to carefully consider the potential benefits and risks before implementing it.
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