Bank of America: Central bank digital currency is more effective than cash and may completely replace it in the future

Central bank digital currencies (CBDCs) are “a more efficient payment system than cash” and could replace cash in the future, Bank of America said in a newly published research report.

The report comes at a time when interest in CBDCs is surging among central banks. A previous survey by blockchain infrastructure platform Bison Trails found that about 80% of central banks are exploring use cases involving CBDCs, with 40% having already tested proof-of-concept programs.

Bank of America said that the adoption of CBDCs is "inevitable," citing the declining role of cash, the increasing use of blockchain technology by the private sector, the loss of control over money, and the potential for CBDCs to boost the economy. The bank also noted that central banks that do not launch their own digital currencies may see a decrease in demand for their currencies.

On the other hand, the report stressed the central bank’s “very cautious approach” in response to concerns that CBDCs could compete with bank deposits, spur bank runs and undermine personal security.

The research paper said that CBDCs qualify as money because they "allow for a store of value and are a unit of account and a means of exchange," distinguishing them from "non-compliant cryptocurrencies." Because they can be traded, they can be considered an asset class.

Furthermore, the Bank of America also claimed that CBDCs could reduce demand for stablecoins, noting that the latter “could lead to runs on cryptocurrencies against fiat currencies during periods of market stress and pose substantial financial stability risks.”

In recent months, Bank of America has stepped up its commitment to offering more cryptocurrency services and exploring the potential of cryptocurrencies.

The bank has set up a team dedicated to cryptocurrencies and related technologies, according to a memo reviewed by CoinDesk earlier this month. It has also approved bitcoin futures trading for some clients, and its prime brokerage unit has begun clearing and settling cryptocurrency exchange-traded products (ETPs) for European hedge funds.