Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
While CBDCs could help central banks address the decline in cash payments, some risk factors remain.
Central bank digital currencies, or CBDCs, could pose a threat to financial systems if related risks are not managed, Big Three credit agency Fitch Ratings has warned.
Fitch Ratings releasedĀ a report on Monday entitled āCentral Bank Digital Currencies: Opportunities, Risk and Disruption,ā which discussed the major trade-offs between risks and benefits associated with CBDCs.
Fitch Ratings stated 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. 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 iactively involved in digital payments. āWidespread use of CBDCs could erode these providersā control over payments-related data and improve central banksā capacity to track financial transaction data, aiding the prevention of financial crime,ā the credit agency wrote.
However, people may be deterred from using CBDCs 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 may 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. Fitch Ratings also pointed out increased cybersecurity risks as āmore touchpoints are created between the central bank and the economy.ā
More governments worldwide are actively exploring CBDCs, including countries like Georgia and Kazakhstan. In the meantime, countries like The Bahamas have been preparing for a nation-wide CBDC push this summer. In early May, the United Statesā Digital Dollar Foundation finally announced their first pilots.Ā
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.