Following the release of the Digital Dollar Project’s white paper, several comments and analysis from the United States’ government agencies had emerged, with those from the Federal Reserve of Philadelphia being one of the most discussed today. As emphasized by the Fed in a recently published report, the introduction of central bank digital currencies (CBDCs) would push private banks to the edge.
In an outline, the US Federal Reserve stressed that CBDC issuance would catalyze a deposit monopolist. Notably, if it happens, it would ultimately paralyze the commercial banking sector in terms of deposits. Furthermore, the agency added that such a scenario could negatively impact maturity transformation. Financial institutions would be forced to borrow money on shorter periods compared to the usual time they lend it out. Likewise, if the competition between commercial banks become compromised, it’s the maturity transformation that would be put on the line.
In the public report, the Fed also admitted that the central bank heavily relies on the technical knowledge of private investment banks in terms of funding lengthy, high-stake projects. However, the agency sees that the same equivalence result can be achieved using a CBDC, but only if competition with commercial banks would be allowed, and if depositors would not panic.
Despite the warning from the country’s central banking system, the idea of a CBDC is still an excellent one for some crypto experts. CEO Marshall Hayner of Metal crypto firm said that he sees no threats to private banks. Instead, he visualizes a day wherein CBDCs would become an integral part of the country’s banking system as if this digital money had always been a part of the regulatory structure. In today’s time, where cash declines at a rapid pace, Hayner emphasized that the US needs to establish more competitive payment systems. Notably, with CBDCs, there are more positives than negatives.
Interestingly, the report of the US Federal Reserve gained solid support from the United Nation’s Blockchain expert, Massimo Buonomo. In a separate study conducted, he also concluded that once CBDCs have been permitted in circulation, there would be no need for people to have a bank account.