Bank of America Calls CBDCs ‘More Effective' Than Cash in Research Note

The second largest U.S. bank said that the rise of CBDCs was "inevitable."

AccessTimeIconJul 29, 2021 at 3:39 a.m. UTC
Updated Sep 14, 2021 at 1:32 p.m. UTC

Bank of America (BofA) called central bank digital currencies “a much more effective payment system than cash,” in a research paper published Wednesday.

The Charlotte, N.C.-based bank, the second largest in the U.S. by total assets, said that CBDCs could “replace cash completely in the (distant) future.”

The report comes amid surging interest among central banks. A May report by the blockchain infrastructure platform Bison Trails found that about 80% of central banks are exploring use cases involving CBDCs, with 40% already testing proof-of-concept programs.

Bank of America said that CBDC adoption was “inevitable,” citing a declining role for cash, the private sector’s increasing use of blockchain technology, loss of control over currency and CBDCs' potential to boost the economy. It also noted that central banks that did not launch their own digital currencies could see decreasing demand for their currencies, "substantially in some cases," and a smaller "global role."

Addressing concerns that a CBDC could compete with bank deposits, spur bank runs and compromise individual security, the paper highlighted central banks’ “very cautious approach.”

The paper said that CBDCs qualified as money “by allowing store of value and being a unit of account and means of exchange,” differentiating them from cryptocurrencies that “do not meet these criteria. “Since they are traded, they could be seen as an asset class,” the paper said.

Bank of America said that CBDCs could lessen the need for stablecoins, noting that the latter could "present a material financial stability risk during times of market stress when there may be a crypto to fiat currency run.”

In recent months, Bank of America has ratcheted up its own commitment to provide more cryptocurrency services and explore crypto's potential.

The bank has created a team dedicated to researching cryptocurrencies and related technologies, according to a memo reviewed by CoinDesk earlier this month. Separately, it has also approved the trading of bitcoin (BTC, +0.63%) futures for some clients, and its prime brokerage unit has started the clearing and settlement of cryptocurrency exchange-traded products (ETPs) for hedge funds in Europe.


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