Fitch Ratings released a report on Monday entitled “Central Bank Digital Currencies: Opportunities, Risk and Disruption,” which discussed the major trade-offs between risks and benefits associated with CBDCs. The report claims that the key benefits of a retail CBDC lie in its potential ability to expand government-backed cashless payments in an effort to keep up with the wider digitalization of society.
CBDCs could help reduce the cost and speed of payments.
The report further mentioned that the biggest reasons to explore a CBDC for central banks and some emerging markets are the opportunity to bank the unbanked as well as reduce the cost and speed of payments. Fitch Ratings also noted that some CBDC proponents see state-backed digital currencies as a way to address challenges of the declining use of cash with the private sector actively involved in digital payments. “Widespread use of CBDCs could erode these providers’ control over payments-related data and improve central banks’ capacity to track financial transaction data, aiding the prevention of financial crime,” the analysts wrote.
Privacy could play a role in adopting CBDCs.
People may be deterred from using central bank digital currencies if they offer less privacy than cash or severely limit amounts stored on electronic wallets, Fitch Ratings noted. The firm warned that the widespread adoption of CBDCs might be disruptive for financial systems if authorities do not manage risks like financial disintermediation caused by the potential for funds to move quickly into CBDC accounts from bank deposits. The report also pointed out increased cybersecurity risks as “more touchpoints are created between the central bank and the economy.” Central banks of China, Japan, Canada, and many other countries are currently working on their national digital currencies.