Macquarie Bank report: As cryptocurrencies are adopted, central banks may lose competitiveness in digital currencies

Macquarie, one of Australia's largest banking groups, released a new research report stating that as the adoption of Bitcoin and other private cryptocurrencies gradually increases, the Federal Reserve and the European Central Bank are likely to lose the competitiveness of digital currencies.

“The development of free-market central bank digital currencies (CBDCs) lags behind the adoption of cryptocurrencies,” the report reads. “It is unclear how entrenched private cryptocurrencies will become before CBDCs become viable, efficient transaction alternatives.”

“During the transition period (1-2 years), absent structural regulatory reforms that inhibit their potential utility, we expect private cryptocurrencies and their fiat equivalents to continue to rise in value.”

“If central banks work quickly and intentionally with private partners to provide reliability, security, and functionality, we believe there is a good chance that government-promoted CBDCs could displace private cryptocurrencies (as well as traditional fiat currencies) in legitimate commerce, reducing aggregate demand for private cryptocurrencies and limiting demand-side factors to ‘store of value’ speculation and illicit transactions.”

The report said that China’s central bank could launch a digital currency as soon as this year, while the Federal Reserve and the European Central Bank would have to wait until at least 2022 for their digital currencies to be ready. Central banks face a daunting task as they not only have to decide how their CBDCs will work but also build the infrastructure to make them work smoothly.

Image source: pixabay

byAmy Liu

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