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The adoption and rise of Central Bank Digital Currencies (CBDCs) is inevitable, according to a Bank of America (BofA) report. The bank believes that central banks that fail to introduce their own digital currency would see decreasing demand for their currencies.
CBDCs Could Replace Cash Completely
According to the second-largest US bank, CBDCs could replace cash entirely in the future due to the increasing use of blockchain technology. In its research paper, Bank of America said that CBDCs could boost the economy, which is why central banks that do not launch a digital form of their currencies may lose out. The bank also dispelled rumors that cryptocurrencies are the same as CBDCs. While CBDCs could be used as a means of exchange and store of value, cryptocurrencies do not yet meet this criterion for now. The bank added that since they are traded, they could be seen as an asset class. The banking giant noted that with CBDCs, the need for stablecoins would be lessened as the digital currencies could present a material financial stability risk during times of market pressure when there may be a crypto to fiat currency rush. The race to CBDC launch has heated up in recent weeks. According to reports by blockchain infrastructure platform Bison Trails, about 80% of central banks are exploring use cases involving CBDCs, with 40% already testing proof-of-concept programs. So far, China is leading the race as it gradually rolls out its e-RMB. In the US, Federal Reserve Chair Jerome Powell disclosed in May that the US was taking steps in exploring a digital currency and will be releasing a discussion paper on digital payments.
Bank Of America Launching Cryptocurrency Services
The Bank of America is one of a growing number of legacy-facing institutions that have shown interest and commitment to a crypto future. Earlier this month, the bank created a team focused on researching cryptocurrencies, according to a memo seen by Bloomberg. The bank chose Alkesh Shah, a founding member of the Data & Innovation Strategy Group at the bank, as the team lead. Reports also have it that the bank has approved the trading of Bitcoin futures for some clients. Sources familiar with the matter say the bank’s prime brokerage unit has started the clearing and settlement of cryptocurrency exchange-traded products (ETPs) for hedge funds in Europe. Other major banks that have started offering crypto services include Goldman Sachs, Morgan Stanley, Citigroup, Standard Chartered, Wells Fargo, and DBS.