A U.S. Treasury study claims that fully integrating CBDCs into the economy would destabilize banks. A recent White House report criticized stablecoins, claiming that they are too vulnerable to run risks to fulfil their role as a “fast payment” instrument. A study released by the Office of Financial Research (OFR) on 22 March claimed that […]
The OFR, a United States Treasury bureau, has claimed that the harm caused by digital currencies to the banking system could be “significant” in times of stress.
The study considered a theoretical “stable state” in the financial sector following the successful implementation of a CBDC. It observed a risk of systemic deleveraging, that is, a fall in bank equity, leading to reduced stability in times of crisis once a digital currency has been introduced. The study also contended that, with a CBDC in place, bank deposits would “compete” with the digital currency in the liquidity portfolios of households. As a result, banks would reduce the spread between lending and deposit rates by increasing interest paid on deposits, leaving them with less equity than they would have without the presence of digital currencies.
According to the study, if digital currency competed too well with bank deposits, the resulting financial instability could harm households. Besides, even if this is not the case, digital currencies may not be the most effective means of increasing public welfare.the Economic Report of the President that criticized crypto assets for failing to deliver on their “touted” benefits.
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