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Central bank digital currencies endanger private banks, Federal Reserve says

June 5, 2020

The Fed’s Philadelphia branch has released a new report in which warns of the potential impact of central bank (CBDC) digital currency issuance.

In the report, the Fed (Federal Reserve) said that –After the introduction of a CBDC, the central bank would “become a monopoly on deposits and attract all deposits outside the commercial banking sector“”

This monopolization could jeopardize the transformation of terms. According to the Fed, this is the practice of financial institutions that borrow money more quickly than they lend.

Central bank digital currencies endanger private banks, Federal Reserve saysCentral bank digital currencies endanger private banks, Federal Reserve says

The Federal Reserve also claims that If competition between commercial banks is affected, the central bank must take special care not to disrupt the maturity transformation.

The report explains that too Central banks are not investment experts and currently rely on private investment banks to fund long-term projects. However, the study finds that the introduction of a CBDC shouldn’t prevent investment banks from investing:

“The central bank cannot invest in long-term projects alone. You have to rely on the expert knowledge of the investment banks. We have achieved an equivalence result that shows that allocations made with private financial intermediation can also be achieved with a CBDC, provided competition with commercial banks is allowed and depositors do not panic. “

Experts celebrate the development of CBDCs

Marshall Hayner, the CEO and co-founder of the cryptoculture company Metal, He told Cointelegraph that he didn’t think CBDCs would endanger private banks.

Metal is building a digital banking platform that uses stablecoins that Hayner believes are the forerunners of CBDCs. The introduction of such a coin is only a matter of time:

“I don’t think CBDCs endanger retail banks, it seems very likely to me [las CBDC] become an integral part of the US banking system and part of the existing regulatory structure [Oficina del Contralor de la Moneda] recently asked for a public opinion on updating its rules for digital activities. “

Hayner said that Central banks should issue retail CBDCs to replace traditional fiat currencies, believing that “efficiency and improvements far outweigh the negative”“He explained:

“As cash is declining rapidly, the need for a digital alternative has arisen for modern banks and fintech platforms. We see the beginning of the global digital dollar, from building trust in the monetary authorities to creating competitive payment systems and improving the use of money laundering. “

end of May The Digital Dollar Project published its white paper. The 30-page document provides information about the possible applications of a US CBDC. The organization was founded by former CFTC executives and professional services company Accenture.

Also at the end of May An IMF official argued that CBDCs should be implemented as a public-private partnership. He explained that the private sector should focus on innovation, interface design and customer management, while the central bank should focus on regulation and financial stability.

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