The Federal Reserve Bank of Philadelphia has warned that central bank digital currencies (CBDCs) are a threat to private banks. In a latest report published by the Fed, the agency said the introduction of CBDC would cause the central bank to become a deposit monopolist. What this means is that, the central bank would be attracting all deposits away from the commercial banking sector.
The Fed further argues that this monopolization could endanger maturity transformation. This is the practice whereby financial institutions borrow money on shorter time frames than they lend it out. The Fed also stated that the central bank would need to take extra care to avoid disrupting maturity transformation, should competition from commercial banks weaken.
The report also explained that central banks cannot invest in long term projects themselves, and currently rely on private investment banks to do so. However, the report notes that the set of allocations achieved with private financial intermediation can also be achieved with a CBDC, if only competition with commercial banks is enabled, and depositors do not panic.
Meanwhile, other industry leaders also argue that CBDCs should be implemented as a partnership between the private and public sectors. An IMF official recently stated that the private sector should concentrate on innovation, interface design and client management, while the central bank focuses on regulation and financial stability.
The U.S. Digital Dollar Project released its whitepaper at the end of last month. The document throws more light on the potential applications of the digital dollar. The team behind the project are former leaders of the CFTF, together with professional services company, Accenture.