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JPMorgan: CBDCs Must Not Cannibalize Commercial Financial Systems

This risk lies in banking customers moving the funds from checking accounts to a CBDC account, eroding commercial banks' funding base.

Aug 6, 2021 at 11:53 a.m. UTC
Updated Sep 14, 2021 at 1:36 p.m. UTC

Central bank digital currencies (CBDCs) must not cannibalize countries' commercial financial systems, according to a JPMorgan analyst.

  • This risk lies in banking customers moving funds from checking accounts to a CBDC account, which could lead to the exodus of as much as 30% of commercial banks' funding base, JPMorgan strategist Josh Younger wrote in a note cited by Bloomberg on Friday.
  • "Relatively heavy-handed caps on holdings would be needed to reduce the utility of a retail CBDC as a store of value," Younger said in the note.
  • Younger proposed a limit of $2,500. That would meet the needs of lower-income households without having a major effect on commercial banks' funding mix, given that most such households have less than $1,000 in their checking accounts.
  • "If every last one of those depositors were to hold only [a] retail CBDC, it would not have a material impact on bank funding," he wrote.
  • A hypothetical conflict between central banks and commercial banks for consumer deposits is often raised as a risk in the development of CBDCs. Were consumers to place all their funds in an account with the central bank then it would hinder commercial banks' ability to offer loans and mortgages, with a knock-on effect on the wider economy.

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