CBDC adoption may destabilize banks: US Treasury Research
According to U.S. Treasury research, banks would become unstable if CBDCs were completely integrated into the economy. Let's explore the study's primary facets.
According to a report published on March 22 by the Office of Financial Research (OFR), the complete adoption of a stablecoin or central bank digital currency (CBDC) would undermine banks while enhancing family welfare. The wellbeing of households may increase if a digital currency is fully integrated, but the stability of the banking industry may suffer.'
In times of crisis, the OFR, a division of the US Treasury, has asserted that digital currencies might "significantly" disrupt the financial system. The study took into account a hypothetical "stable state" in the banking industry after a CBDC was successfully implemented. Once a digital currency is used, there is a danger of systemic deleveraging, or a decline in bank equity, which might result in less stability during times of crisis.
Additionally, the study claimed that once CBDC was in place, bank savings would "compete" with digital currency in household liquidity portfolios. As a result, banks would pay more interest on deposits, narrowing the gap between lending and deposit rates, leaving them with less equity than they otherwise would have.
According to the report, people may suffer from financial instability if digital currency outperformed bank savings. Digital currencies could not be the most efficient way to improve public welfare even if this is not the case.
CBDCs face retribution from the American establishment Only two days prior, the White House had published the Economic Report of the President, which chastised crypto assets for not living up to their "touted" promises.
The paper contends that contrary to what proponents of bitcoin assert, cryptocurrencies do not enhance payment systems or advance financial inclusion. Stablecoins are also criticized in the paper, with the assertion that they are too risky to serve as a tool for "fast payment" as intended.
Invoking worries about widespread surveillance, Florida Governor Ron DeSantis (Rep.) filed legislation earlier this week to forbid the use of central bank digital currency (CBDC) in his state.
The CBDC Anti-Surveillance State Act was introduced last month by Rep. Tom Emmer (R-Minn.), the Majority Whip in the US House of Representatives, in an effort to stop a CBDC in the country. The Biden administration issued an executive order on the appropriate development of digital assets a year ago, but little has changed since then.
CBDCs should not be anticipated in the United States anytime soon, according to Federal Reserve Chairman Jerome Powell, because the Fed has not yet made any significant judgments. Powell was answering inquiries concerning digital assets while giving testimony before the House Financial Services Committee.
This latest update on CBDC in the US will also affect crypto regulation.
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