US Treasury Study: CBDCs Compete With Bank Deposits, Could Destabilize Banks

A study by the US Treasury's Office of Financial Research suggests that a central bank digital currency or stablecoin would compete with bank deposits and improve household welfare, but it could destabilize banks during times of financial crisis. The study warns of a risk of systemic deleveraging and reduced stability. The competition between banks and digital currency would cause banks to reduce the spread between lending and deposit rates, leading to reduced equity. The study suggests that digital currencies' optimal level may be below what would be issued in a competitive environment.