Plans to introduce digital currencies are gaining momentum among the world’s central banks. But what level of disruption will it bring to the financial system? The effects are likely to be far reaching, Chetan Ahya, Chief Economist and Global Head of Economics at Morgan Stanley, reports.
Significant disruption could play out in the financial system
“Commercial banks could face disintermediation, that is, be cut out of transactions if consumers use non-banking entities. Once a digital currency launches, consumers will be able to transfer their bank deposits to their CBDC accounts, subject to central bank limits. And the technological infrastructure of CBDCs could also make it easier for new non-bank entities to enter the payment space. As this transition accelerates, the competitive pressures on commercial banks will likely increase.”
“Another area of impact could be transactions data. We expect a tug of war between the consumers who want to stay anonymous and the innovative fintech companies that will create incentives for consumers to use their platforms, thereby generating valuable user transaction data. Fintech success could spark a proliferation of network effects that allow them to gain market share vs. traditional banks.”
“CBDCs could disrupt the international payment system. Any country with a CBDC that is accepted for international transactions could enjoy significant advantages in financing costs and control over financial transactions, similar to the US dollar's privileged role today. Some central banks, like the ECB and the People's Bank of China, see the move toward digital currency as an opportunity to raise the international status of their respective currencies and share of cross-border payments.”
“While CBDC initiatives aren’t intentionally disruptive, they will likely bring unintended consequences that are. The pace of disruption will hinge on how quickly network effects take hold in the CBDC system; the more widely digital currencies are accepted, the more opportunity for innovation, and the greater the scope for disruption to the financial system.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays in positive territory near 1.0650
EUR/USD clings to modest daily gains at around 1.0650 in the American session on Wednesday. The US Dollar struggles to gather strength amid a modest improvement seen in risk mood and helps the pair hold its ground.
GBP/USD stabilizes at around 1.2450 after UK inflation data
GBP/USD consolidates its daily gains near 1.2450 after recovering toward 1.2500 with the immediate reaction to stronger-than-expected inflation data from the UK. The renewed US Dollar weakness also helps the pair hold its ground.
Gold eases despite risk-off mood
Gold trades in a relatively tight range near $2,390 in the second half of the day on Wednesday. In the absence of high-tier data releases, investors keep a close eye on headlines surrounding the Iran-Israel conflict.
XRP tests $0.50 resistance after Ripple CLO clarifies that no pretrial conference took place with SEC
XRP is stuck below $0.50 resistance after failing to close above this level since Monday. Ripple CLO Stuart Alderoty said late Tuesday there was no pretrial conference since the SEC dropped charges against executives.
World economy: To cut or not to cut (simultaneously)?
US inflation March figure, again higher than expected, put an end to the scenario of a simultaneous first rate cut by the Fed, the ECB, and the BoE in June.