A recent study by the United States Treasury revealed that the introduction of central bank digital currency (CBDC) could potentially destabilize the banking sector while also having the potential to boost household welfare.
Before now, US lawmakers expressed dissatisfaction with developing central bank digital currencies (CBDCs). In a new bill, the board noted that the Fed has no authority to develop and issue a central bank digital currency, as it may affect the privacy protection of digital asset investors.
Impact Of CBDC On Banks
Based on the Office of Financial Research’s study, the effect of these central bank digital currencies could be drastic given the economy’s current condition, and introducing a central bank digital currencies could lead to instability and reduced bank equity.
The research board believes establishing a CBDC or stablecoin in the economy may raise competition between digital currency and bank deposits. This may push banks to increase deposit interest rates to reduce the spread between deposit and lending transactions.
However, the outcome of this action will be reduced equity for the banks. Usually, banks rely on deposits to fund their lending activities, and paying higher rates on deposits could lead to a credit crunch and increased systemic risk.
However, there are chances that this occurrence will be beneficial to households. According to the research, there will be a slight gain of up to 2% for consumers amid the competition between digital currency and banks. It also noted that the benefit might not last if the competition favors digital currency, as the households will face the heat of the resulting financial instability.
System Volatility May Also Decrease
The study also revealed that apart from banks’
Go to Source to See Full Article
Author: Savannah Fortis
Tip BTC Newswire with Cryptocurrency
Donate Bitcoin to BTC Newswire
Donate Bitcoin Cash to BTC Newswire
Donate Ethereum to BTC Newswire
Donate Litecoin to BTC Newswire
Donate Monero to BTC Newswire
Donate ZCash to BTC Newswire
