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CBDC could pose a threat to the financial system

CBDC could pose a threat to the financial system

The state-backed digital currencies can disrupt the financial systems. Though CBDCs can help Central banks to address the decline in cash payments, some risk factors remain.

Fitch Ratings

Fitch Ratings is a Big Three credit agency. It warned that the central bank digital currencies could threaten the financial systems if the related risks are not appropriately managed. Fitch Ratings also released the report entitled “Central Bank Digital Currencies: Opportunities, Risk, and Disruption.”

The report discusses significant tradeoffs between risks and benefits associated with CBDCs. In addition, they stated that the key benefits of a retail CBCD lie in its potential ability to expand government-backed cashless payments.

Digitalization of Society

Moreover, it is an effort to keep up with the broader digitalization of society. The biggest reasons to explore CBDC for Central banks and some emerging markets are now becoming the opportunities to bank the unbanked. Moreover, this also helps to reduce the cost and speed of payments.

Fitch Ratings also noted that some of the CBDC proponents see the state-backed digital currencies to address the challenges of the declining use of cash with the private sector actively involved in digital payments.

The credit agency wrote that the widespread use of these CBDCs erodes these providers’ control over payment-related data. Moreover, it can also improve the Central bank’s capacity to track the financial transaction data to prevent financial crime.

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