The Bank of America has discussed the benefits of a US central bank digital currency in a new report.
US digital dollar expected between 2025 and 2030
“Central bank digital currencies are the inevitable evolution of today’s electronic currencies.” said the Bank of America.
The bank released a report on Monday titled “US CBDC: First Step in a Long Journey”. It stated that a central bank digital currency (CBDC) would be different from existing digital money. This would be because it would be the responsibility of the Federal Reserve. According to the bank, it would pose no credit or liquidity risk to the digital currency.
The report also stated that the US would benefit from issuing a digital currency. It could ensure that the dollar will remain the world’s reserve currency. However, the report failed to explain how a digital currency would achieve this.
“We expect a US CBDC to be issued between 2025 and 2030”, is in the report. It also stated the following:
“Potential benefits include preserving the dollar’s status as the world’s reserve currency and improving cross-border payments. The average cost of transferring $200 from the US was 5.4% of the transaction value in Q2 21. It also increases financial inclusion (~5% of US households did not have a bank account in 2019). Finally, it creates new use cases.”
Do you want to trade Crypto on one of the largest and most reliable exchanges in the world? click here and go to KuCoin.
What is a CBDC?
A CBDC is a digital version of a fiat currency. However, they are different from digital assets such as Bitcoin. This is because they are backed by a central bank. As a result, they are usually not hosted on public networks. Countries around the world are currently exploring the benefits of developing their own digital currencies.
Some countries, such as India and Mexico, have already launched it or are in the testing phase of a CBDC project. But the US is still researching the benefits of having a CBDC.
The risks of releasing a CBDC could include increasing the liquidity risk of the financial system if deposits from commercial banks are converted into a CBDC. So there could be a cash shortage if their customers suddenly convert their money digitally, according to the bank.
The bank also noted that a CBDC could “decrease the effectiveness of monetary policy implementation.” That is, it could change the way the Fed currently prints and injects cash into the financial system to stimulate the economy.
The bank suggests that the US should focus on making the CBDC “privacy-protected”. Wallets must also be available and it must be easily transferable.
The report concluded by stating that China’s CBDC has the “greatest potential for widespread adoption and use within the next few years”.