Plans for disruptive digital currencies proliferating among central banks

By James Langton | September 21, 2021 | Last updated on September 21, 2021
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As appetites for digital payments grow, the number of countries exploring the use of central bank digital currencies (CBDCs) is taking off too, reports Moody’s Investors Service.

In a research note, the rating agency said CBDC development has “dramatically increased” as the banking industry increasingly migrates to digital services, consumer preferences shift, and stablecoins proliferate.

While CBDCs hold the promise of faster, cheaper payments and improved financial inclusion, they also pose a natural threat to traditional financial firms, the report noted.

The adoption of CBDCs could heighten the risk of banks being cut out of their traditional middleman role, which would raise their funding costs too, it suggested.

“CBDCs are inherently disruptive to financial institutions, and, although not meant to compete directly with bank deposits, CBDCs would provide an appealing risk-free alternative, attracting retail deposits, the predominant funding source of banks. This would create heightened disintermediation risks for banks, higher funding costs and fee income loss,” it said.

In an effort to avoid these effects, Moody’s said that central banks are designing their digital currencies to minimize the threat of disruption.

“The preferred choice for the CBDC model is the two-tier retail CBDC, in which banks and other financial intermediaries maintain client-facing roles while end users see little change in terms of interacting with their current financial institution,” it said.

Ultimately, the impact of CBDCs on existing monetary systems will “depend on specific choices central banks make in the design of their CBDCs, and these choices will likely differ across countries,” Moody’s said.

These design choices will also help determine the relative attractiveness of a CBDC as a store of value and a medium of exchange, the report said.

“Central banks will have to balance CBDCs’ potential to solve specific problems against its disruptive effects to existing financial market infrastructure, particularly banks,” it noted.

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James Langton

James is a senior reporter for and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.