Bank of America released a new study on Monday detailing the increasing role of central bank digital currencies on present-day economies. According to the bank, a digital dollar would play an important role in preserving the hegemony of the US dollar.
The report titled ‘US CBDC: First Step in a Long Journey' outlined how a central bank digital currency may be different from any existing digital money that is already available to the public. One of the main ideas is that such currency would be a liability of the Federal Reserve, which will ensure control over the liquidity and currency credit.
A shift to a digital currency could also ensure that the US dollar remains the world’s preferred reserve currency. The report acknowledges that the US may work on a delayed timeline, citing the years between 2025 and 2030 as the most likely release date for the digital dollar, and enumerated some of the benefits of this move, stating:
“Potential benefits include preserving the dollar's status as the world’s reserve currency, improving cross-border payments (average cost to remit $200 from the US was 5.4% of the transaction value in Q2 2021), increasing financial inclusion (~5% of US households were unbanked in 2019) and leveraging new use cases provided by a digital currency.”
The US has admittedly fallen behind in the race for a digital currency. South Korea has already completed phase one of its pilot test program. China is already testing its CBDC at the Beijing Olympics. US diplomats have called the currency a security risk and have urged people to leave their phones at home when traveling to attend the Olympics.
This comes amid surging interest in the digital yuan floated by the People’s Bank of China. In light of those privacy concerns, Bank of America argues that the US should offer a better level of privacy for its upcoming CBDC.
One key objective would be for the currency to be able to identify and prevent fraudulent transactions. However, the report acknowledged that China currently has “the largest potential for broad adoption and usage within the next several years.”