Bank of America Says US CBDC Would Preserve Dollar’s Status as World’s Reserve Currency

CBDC’s are an inevitable evolution of today’s electronic currencies, the bank’s analysts said.

AccessTimeIconJan 24, 2022 at 4:20 p.m. UTC
Updated May 11, 2023 at 4:50 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

A U.S. central bank digital currency (CBDC) would differ from the digital money currently available to the public because it would be a liability of the U.S. Federal Reserve, not a commercial bank, and so would have no credit or liquidity risk, Bank of America said in a report.

Preserving the dollar’s status as the world’s reserve currency, improving cross-border payments and increasing financial inclusion are all seen as benefits of a U.S. digital currency, analysts led by Alkesh Shah, wrote in the note Monday. The Fed published a discussion paper last week on the benefits and risks of a U.S. CBDC.

Potential risks – which could be diminished by CBDC design choices – include “changing the financial sector’s market structure by shifting deposits, increasing the liquidity risk of the financial system if deposits at commercial banks were converted to a CBDC and decreasing the efficacy of monetary policy implementation,” the note said.

Bank of America said key considerations before issuing a CBDC are the need for it to be privacy-protected, intermediated, transferable and identity-verified.

Stablecoins are likely to see an increase in usage in the absence of CBDCs, the bank noted, adding that the two largest by market value, tether and USD coin, had a combined market value of around $121 billion as of Jan. 21. Their use as a means of payment is increasing, particularly for cross-border remittances, the report said, as they are faster and cheaper than using fiat currency.

In a report published earlier in the month, Bank of America challenged the Bank of England’s assertion that a U.K. CBDC would act just as a form of digital cash. It said CBDCs are likely to replace checking accounts as the way in which consumers hold the majority of their funds.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk offers all employees above a certain salary threshold, including journalists, stock options in the Bullish group as part of their compensation.

Author placeholder image

Will Canny is CoinDesk's finance reporter.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.


Read more about