Bank of America Reports: Global Uptake of CBDCs Increases, Yet U.S. Digital Dollar Launch Remains Distant

Bank of America has reported that although the United States is exploring the concept of a digital dollar, its actual implementation remains uncertain for the foreseeable future.

In their recent analysis, the bank’s experts, led by Alkesh Shah, highlighted that central banks representing 67% of global countries, accounting for 98% of the world’s gross domestic product, are currently investigating the potential of central bank digital currencies (CBDCs). Furthermore, about one-third of these nations have advanced significantly in their CBDC development.

Despite ongoing CBDC pilots by the Federal Reserve, the analysts emphasize that the U.S. has not yet committed to introducing a CBDC. They stated, “The Federal Reserve (Fed) continues to pilot CBDCs but has not committed to a CBDC and will not issue one without executive branch and Congressional support.”

CBDCs are essentially digital versions of national currencies, issued and regulated by the respective central banks. These digital currencies differ from cryptocurrencies due to their centralized nature and direct link to existing fiat currencies.

The political landscape in the U.S. reveals divided opinions on CBDCs, with Democrats generally supporting them for their potential to strengthen the dollar’s global dominance. In contrast, Republicans have expressed concerns, viewing them as tools for state surveillance.

The Federal Reserve’s position on CBDCs has been relatively neutral. Vice-chair for Supervision Michael Barr indicated that discussions are ongoing with experts to devise an optimal infrastructure for a digital dollar, but no conclusive decision has been made yet.

Bank of America’s report also delves into the potential advantages and risks associated with CBDCs, which largely depend on their specific designs and issuance methods. While CBDCs could offer benefits like enhanced efficiency in domestic and cross-border payments, financial inclusivity, and improved monetary policy implementation, there are also potential downsides. These include risks like increased competition with bank deposits, the possibility of more frequent bank runs, loss of monetary sovereignty, and international tensions.

The bank remains optimistic about CBDCs’ capacity to transform global financial systems, predicting that central banks will continue to drive cryptocurrency innovation by collaborating with the private sector. This collaboration is expected to benefit various stakeholders throughout the stages of CBDC implementation.

Public opinion in western countries, however, shows significant skepticism toward CBDCs. For instance, a WealthRocket survey in June revealed that 39% of 1500 Canadians surveyed were concerned about losing financial control due to CBDCs. Similarly, a July survey by the CFA Institute found only 31% support for CBDCs among American investment professionals, compared to 70% in China. Privacy concerns and doubts about the technology’s practicality were the primary issues highlighted by critics.