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    Home » Crypto News » Fedеral Reserve Philadelphia: CBDCs Could Disrupt Current Financial Systems

    Fedеral Reserve Philadelphia: CBDCs Could Disrupt Current Financial Systems

    Author: Jordan Lyanchev

    Last Updated Jun 7, 2020 @ 08:28

    The Federal Reserve of Philadelphia believes that central bank digital currencies (CBDCs) could significantly impact global finance. In a recent paper, the Fed even suggested that digital currencies could replace commercial banks if they manage to tone down any associated risks.

    Fed Philadelphia Pro-CBDC

    In its comprehensive report on the matter, the Fed examined the potential merits and drawbacks of CBDCs in an ever-digitalizing world.

    “The introduction of a CBDC can represent an important innovation in money and banking history. Besides its potential role in eliminating physical cash, a CBDC will allow the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits (and, likely, engaging in some form of lending of those deposits.)” – indicated the paper.

    The document primarily focused on the plausible implications of CBDCs to serve as competition to the traditional maturity-transforming role of commercial banks. It informed that “the central bank cannot invest in long-term projects itself, but instead has to rely on the expert knowledge of investment banks to do so.”

    Therefore, the essential question remains if the introduction of CBDCs would disrupt this system, and the research arm of the Fed concluded:

    “We have derived an equivalence result that shows that the set of allocations achieved with private financial intermediation will also be achieved with a CBDC, provided competition with commercial banks is allowed, and depositors do not panic.”

    However, if the competition from commercial banks is impaired – through some fiscal subsidization of central bank deposits, for example – the central bank has to be “careful in its choices to avoid creating havoc with maturity transformation,” warned the report.

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    CBDCs Around The World

    While the Fed has been somewhat inconclusive whether or not it should launch its own CBDC, numerous central banks around the world have made serious progress. In fact, a study compiled by the Bank of International Settlements (BIS) concluded that 80% of central banks were working on releasing their digital currency.

    Arguably the most advanced nation is China, as reports regularly emerge to outline the country’s progress. One of the latest claimed that the most populated nation in the world might launch its state-backed digital currency sooner than expected for post-COVID-19 stimulus.

    The rapid developments caught the attention of the G20’s Financial Stability Board as well. The FSB recently issued ten recommendations for a common regulation that include CBDCs. The watchdog believes that most current laws would be inefficient with digital currencies, and urged for the introduction of more adaptable legislation.

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    Tags: Banks CBDC China Federal Reserve United States
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    About The Author

    Jordan Lyanchev
    More posts by this author

    Jordan got into crypto in 2016 by trading and investing. He began writing about blockchain technology in 2017 and now serves as CryptoPotato's Assistant Editor-in-Chief. He has managed numerous crypto-related projects and is passionate about all things blockchain. Contact Jordan: LinkedIn

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