Fitch Ratings has stated that the broad implementation of Central Bank Digital Currencies (CBDCs) will present authorities with a range of risks and benefits. The primary advantage of CBDCs lies in their potential to revolutionize authority-backed cashless payments in line with the wider digitalization of society. For central banks in some emerging markets, a major motivation for researching CBDCs is to bring the unbanked population into the financial system and improve the cost, speed, and reliability of payments.
Some proponents view CBDCs as a way to address the challenges posed by the diminishing use of cash. The rise of digital payment systems that have strong network effects can create monopolies among payment-system providers, usually from the private sector. The widespread adoption of CBDCs can weaken these providers’ control over payments-related data and improve central banks’ ability to track financial transaction data, aiding the prevention of financial crime.
However, if CBDCs provide less privacy than cash or severely restrict the amount held in electronic wallets, some may be discouraged from using them. CBDCs may also open up new policy options such as transfers into CBDC accounts as part of disaster relief or stimulus efforts. The programmability of CBDCs offers further possibilities for flexibility, including the potential to influence social behavior.
Fitch has warned that the widespread adoption of CBDCs may be disruptive for financial systems if the associated risks are not managed. These include the potential for funds to move quickly from bank deposits to CBDC accounts, leading to financial disintermediation, and for increased cybersecurity threats as more connections are created between the central bank and the economy.