Tuesday, June 22, 2021

Fitch Ratings claim CBDCs could disrupt the current financial systems.

The Takeaway:

One of the world's largest credit rating agencies believes that central bank digital currencies (CBDCs) could disrupt the current financial systems.

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In its latest report, Fitch Ratings looked into how central bank digital currencies could impact the global financial system, including giving governments a new way to track financial data and new financial policy options. Central banks across countries are looking at CBDCs. Some like the Bahamas, have already launched their sovereign digital currencies, while others like China are in advanced development stages. Yet, others like the U.S. and the U.K. are still exploring the feasibility of a CBDC and its effect on the financial system. 


Central banks will have to make trade-offs.

According to Fitch Ratings, there will be risks and benefits, and central banks will have to make trade-offs on some for the others. Fitch Ratings, which together with Standards and Poor’s and Moody’s, makes up the ‘Big Three,’ believes that at a time when cash payments are declining, CBDCs are critical for central banks to keep their stronghold on the financial system. The key benefits of retail CBDCs lie in their potential to enhance authority-backed cashless payments with innovations in step with the wider digitalization of society,” the credit rating agency stated. One of the world’s largest credit rating agencies believes that central bank digital currencies (CBDCs) could disrupt the current financial systems.


Cash payments decline in major economies. 

Cash payments are on a steep decline in most economies globally. With mobile payments becoming faster and cheaper and smartphone penetration soaring even in developing countries, most people are choosing digital payments. In Sweden, a global leader in cashless payments, the share of cash payments stands at less than 1.5%. In China, it stands just below 4%. Cashless payments are opening new opportunities and powering the digital economy. However, they also present a unique risk—the creation of oligopolies, often from the private sector. This has been a key reason many regulators have rejected private digital currencies like Facebook’s Diem. 

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Disclaimer: The article reflects the opinions of the author and is not representative of Chaintimes’ views.
The article does not offer any investment advice. User discretion is advised when investing in or trading with cryptocurrency. Extensive and diligent research should be carried out by the reader before making a decision.

Jai Pratap
Jai Pratap
A Mass Media Graduate who loves to write. Jai is also a sports enthusiast and a big movie buff. He loves to learn new things.

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