Bank of America (BoA) has become the latest financial institution to express confidence in digital currencies, and specifically central bank digital currencies (CBDCs).
In a research note published on Wednesday, BoA called CBDCs a “much more effective payment system than cash”.
There is no immediate threat to cash from CBDCs, but the bank is confident that they could replace cash in the “distant future”.
Based on a blockchain platform Bison Trails' report, around 80% of central banks are now actively engaged with studying CBDCs and at least half of those are already in the process of testing some form of pilot concept.
Meanwhile, BoA remained confident that the transition towards CBDCs is inevitable and that these currencies have the potential to boost the economy so that consumers and nations may benefit. Conversely, missing out on the CBDCs could backfire and lead to decreasing demand for a nation's currency, to name those that have not digitalized them.
BofA was aware of the main pain points that people continue to cite, including lack of privacy, competing with bank deposits and bank runs, and argued that the adoption of CBDCs should proceed with caution.
However, the bank was confident that CBDCs are money, due to “allowing store of value and being a unit of account and means of exchange”. BoA was also looking into how a reliable CBDC could uproot stablecoins cautioning that the latter represented a systematic risk to economies.
This comes in a broader context of the US taking a firmer stance against China's digital yuan. Lawmakers have urged citizens and Olympic athletes to not use the CBDC and argued that it could be an invasion of their privacy.