Digital Currencies May 'Erode' Dollar's Role in Global Finance: Report

A new report from Deutsche Bank says countries need to be ready for the disruption central bank digital currencies may cause. By Mathew Di Salvo

Central bank digital currencies (CBDCs) are likely to transform the way we live, and consumers and financial institutions need to be ready, Deutsche Bank has said. CBDCs could have a particularly heavy effect upon the US. That’s because CBDCs adopted around the world could “erode the dollar’s primacy in the global financial market,” the bank wrote in a September report, “Central bank digital currencies: Money reinvented.” Specifically, countries could use their own digital currencies to engage in bilateral trade while bypassing the US dollar. Dollars are involved in nearly 90% of global transactions, according to the Bank of International Settlements; it’s the world’s primary reserve currency. So, although such technology could be beneficial—such as through lower interest rates—it could “be disruptive both for the banking sector and the practicalities of central bank policy.” According to the report, 80% of the world’s central banks are researching whether a CBDC could benefit their respective economies. CBDCs differ from other digital currencies, like Bitcoin, as they are issued and regulated by governments and are pegged to fiat currencies. A CBDC would work by digitalizing the US dollar or Japanese yen, for example. Central banks in different countries are in very different stages of research. For example, while the Bank of England is still cautiously taking baby steps toward developing a CBDC, China appears to already be testing a digital e-renminbi. “Issuing one of the first CBDC would also be a step towards China’s target of becoming a world leader in science and innovation by 2050 and provide a reserve currency,” the report said.