Central bank digital currency (CBDC) adoption could lead to a less stable banking system and more prosperity for households.
The Office of Financial Research (OFR), part of the U.S. Department of the Treasury, published the results of a study on the potential impact of the full adoption of CBDCs or stablecoins in the country’s economy. Analysts concluded that such a move could increase household wealth, but would destabilize the banking sector as banks begin to experience systemic deleveraging and, as a result, a reduction in equity.
In addition, digital currency in the economy will force banks to “compete” with it for a place in households’ liquidity portfolios. In order to do this, banks will have to raise interest rates on deposits without changing the terms of lending funds, which will also result in a reduction of their equity capital. Under the economic crisis, this may destabilize the banking sector.
Analysts also predict a 2% growth in household wealth in the equivalent of consumption due to the adoption of digital currencies. On the other hand, the damage from financial instability provoked by their implementation may exceed the potential growth of wealth.
It’s worth noting that an earlier White House report also expressed concern about the risks associated with integrating CBDCs into the banking system. However, such documents could be a test of public opinion, an “Overton window” amid the intention to reboot the banking system with CBDCs.
