Bank of America says “digital currencies appear inevitable,” adding that central bank digital currencies (CBDCs) and stablecoins are “a natural evolution of today’s monetary and payment systems.” The bank 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 global research team published a report on global cryptocurrencies, digital assets, and central bank digital currencies (CBDCs) earlier this week. The bank wrote:

Digital currencies appear inevitable. We view distributed ledgers and digital currencies, such as CBDCs and stablecoins, as a natural evolution of today’s monetary and payment systems.

“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 currently 114 central banks exploring CBDCs, representing 58% of countries globally and over 95% of global GDP. It also notes that central bank 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 adds that “the private sector is critical for CBDC development and issuance,” elaborating:

Central banks and governments can’t build new financial systems based on distributed ledger technology alone and have indicated that they will leverage the private sector to drive digital asset innovation. We expect private sector beneficiaries to emerge in all phases of CBDC implementation.

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

Bank of America also pointed out some risks. “CBDC issuance and adoption could also increase the frequency of bank runs if not properly designed,” the bank warned, adding 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 could mitigate this risk by introducing CBDC holding limits, either on a temporary or permanent basis.

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