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“CBDC could disrupt the financial system,” US rating agency Fitch


CBDC risk

Fitch Ratings, a U.S. rating agency, pointed out that the widespread adoption of the Central Bank Digital Currency (CBDC) for the general public could disrupt the financial system if risk management is inadequate.

Fitch mentions the so-called retail type (small-lot payment type) CBDC, which has shown the following two main risks.

(1) Risk of rapid increase in the flow of funds transfer from a commercial bank deposit account to a CBDC (Central Bank) account.

(2) There is a possibility that the threat of cyber security will increase as the number of points of contact between the central bank and the general economy increases.

In the case of retail CBDC, individuals who have not previously had a direct business relationship with the central bank will use CBDC for retail payments. Therefore, it is considered that the risk of the central bank system may increase due to the rapid increase in the number of accesses.

Risk of rapid transfer of funds

Fitch points out that widespread transfer of funds could lead to “elimination of financial intermediaries (commercial banks)” and disruption of the financial system.

For more information on the risk of money transfer and its impact, see the commentary article on “SBI R3 Japan” below. The reasoning is summarized below.

  • When general consumers who have deposit accounts at commercial banks move to central bank accounts for convenience and security, the commercial banks will run out of funds.
  • If the traditional deposit model (general consumers leave deposits for a long time) collapses, there is an urgent need to collect the funds lent to the company, and there is a possibility that lending will occur.
  • Commercial banks raise funds from financial markets, but the market structure is complicated and they carry market procurement risks.
  • In the case of foreign currency procurement such as dollars, overseas financial institutions may be reluctant to lend.

From this perspective, we have come to the conclusion that financial markets may be destabilized and problems similar to the financial crisis may arise.

Relation:Pit of CBDC-From Reuters article- (first half)

Benefits of CBDC

Fitch’s advantages of CBDC include the benefits of strengthening cashless payments (improved payment costs, speed and resilience), financial inclusion of those who do not have a bank account, and prevention of financial crimes by improving the ability to track financial transaction data. I’m giving.

He also mentioned the possibility of taking advantage of the programmable characteristics of the CBDC to expand new policy options, such as direct remittances to the CBDC account, as part of disaster relief and stimulus measures.

However, many of these advantages can also be disadvantages in different positions. From the user’s point of view, the central bank’s seizure of financial transaction data can be seen as a serious invasion of privacy. Also, if there are restrictions on the amount of money held by individual electronic wallets, it may be questionable whether general users will benefit from using the CBDC instead of cash.

US cautious about CBDC

Many central banks around the world, including Japan, are working on CBDC projects, but there is a big gap in their progress. PwC, one of the four largest accounting firms in the world, has announced the maturity ranking of CBDC development in each country by dividing it into retail type and wholesale type (interbank) projects, but Japan is wholesale type. It is ranked in 10th place.

Relation:Country Rankings for Digital Currency (CBDC) Projects = PwC Report

On the other hand, the United States, which is cautious about the CBDC’s efforts, is not ranked in any of them.

The Federal Reserve Bank of Boston (FRB) has been collaborating with the Massachusetts Institute of Technology (MIT) on CBDC since last summer, but the bank’s governor, Eric Rosengren, issued the CBDC last week. Said that further investigation would be needed in the future.

It is not difficult to imagine that digitizing the US dollar, which is the world’s key currency, will pose a different level of challenges from the perspectives of liquidity and security.

Governor Rosengren cites improved financial inclusion, lower transaction costs and flexibility in implementing monetary policy as advantages of the CBDC, but argues that policy implications and trade-offs should be taken into account. doing.

Relation:Federal Reserve Bank of Boston Governor “US should consider trade-offs, such as threat to CBDC financial stability”


Author: Naoko Kouda
Reference: Fitch Ratings

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