Fitch Ratings warned that the central bank’s digital currencies or CBDCs could pose a threat to financial systems if the associated risks are not addressed.
On Monday, Fitch Ratings released a report entitled Central Bank Digital Currency: Opportunities, Risks and Turbulence, which discussed the most important trade-offs between risk and benefits associated with the central bank’s digital currencies.
Fitch Ratings said that the main benefits of cryptocurrency for a commercial commercial bank are its potential ability to expand government-supported cashless payments to keep pace with the broader digitalisation of society. The main reason for studying central bank currencies for central banks and some emerging markets is to be able to handle non-dealers and to reduce the cost and speed of payments.
Fitch Ratings also noted that some proponents of central bank currencies see government digital currencies as a way to address the challenges of reducing the use of cash, while engaging the private sector in digital payments. “The widespread use of digital currencies by central banks could undermine the control of these providers over payment data and improve central banks’ ability to track financial transaction data, thus helping to prevent financial crime,” the credit bureau wrote.
However, according to Fitch Ratings, people can be barred from using the central bank’s digital currencies if they offer less privacy than cash or severely limit the amount stored in e-wallets.
The company warned that the widespread adoption of the central bank’s digital currencies could disrupt financial systems unless the authorities handle risks such as financial intermediation due to the ability to quickly transfer funds to the central bank’s digital currency accounts from bank deposits. Fitch Ratings also pointed to increased cybersecurity risk as “more common ground is created between the central bank and the economy.”
Governments around the world are actively exploring the possibility of using the CBDC, including countries such as Georgia and Kazakhstan. Meanwhile, countries like the Bahamas are making arrangements to market the CBD nationwide this summer. In early May, the US Digital Dollar Corporation finally announced its first pilot projects.