The Philadelphia Federal Reserve believes that central bank digital currencies (CBDC) can have a significant impact on global finance. In one recent study, the Fed even suggested that they could replace commercial banks if they manage to reduce their risks.
Federal Reserve Report of Philadelphia
In its extensive report regarding CBDC, the Fed has examined the potential pros and cons of CBDC in an increasingly digital world.
“The introduction of CBDC can be an important innovation in the history of money and banking. In addition to the potential role in eliminating physical cash, the CBDC will allow the central bank to engage in extensive brokerage by competing for deposits with private financial intermediaries (and, probably, engaging in some form of lending for these deposits). “
– wrote in the report.
This document primarily focuses on the likely effects CBDC may have on the traditional role of commercial banks in changing maturities. It states that “a central bank cannot invest in long-term projects alone, but must rely on the specialized knowledge of investment banks to this end.”
The main question therefore remains whether the introduction of CBDC could disrupt this system.
“We have obtained a balancing result that shows that a set of allocations obtained through private financial intermediation will also be achieved with the help of CBDC. This will happen provided that competition with commercial banks is allowed and depositors do not panic. “
– stated in the report.
However, if competition from commercial banks is weakened – for example, through some subsidies to central bank deposits – the central bank must be “cautious in its choices to avoid creating chaos in reshaping maturities”.
CBDC in the world
While the Fed is uncertain about whether to launch its own CBDC, many central banks around the world have made serious progress on this. In a study conducted by the Bank for International Settlements foundthat 80% of central banks are working on introducing their digital currency. In addition, research shows that 40% are already in the research or testing phase, while 10% are conducting pilot projects.
Probably the most developed country in this area is China, because regularly there are reports of progress made by this country. At the end of May information appearedthat China will introduce its CBDC earlier than planned to counter the potential consequences of the US trade war and implement post-pandemic stimulus.
The rapid development of the situation also caught the attention of the Financial Stability Board (FSB). The FSB has recently issued ten recommendations on joint financial regulation, including the CBDC. The Council believes that most current regulations would be ineffective for digital currencies and called for more flexible provisions.