The Bank of America report mentioned the possibility of the United States issuing its own Central Bank Digital Currency (CBDC) between 2025 and 2030.
Describing CBDCs as "An inevitable evolution of electronic currencies", Bank of America strategists Alkesh Shah and Andrew Moss noted that the Central Bank Digital Currency will be a responsibility of the US Federal Reserve.
The benefits of CBDC outweigh the downsides
In a note reported Monday by Bloomberg, strategists noted that the benefits of CBDC include protecting the value of the dollar, increasing financial inclusion and improving cross-border payments.
The report also highlighted some potential risks, including increased liquidity risk in the financial system from the conversion of commercial bank deposits to CBDCs, and changes in the financial market structure through deposit shifting.
But, according to Bank of America, these risks can be mitigated depending on the design of the CBDC.
Bank of America noted that prior to the issuance of the digital currency, certain factors must be considered in order to develop a privacy-protected, brokered and authenticated CBDC.
Meanwhile, the bank noted that the use of private cryptocurrencies, especially stablecoins, will increase. Fixed coins used as a form of payment for cross-border remittances increased, according to the report.
The report states:
“We expect the adoption of stablecoins and payments to increase significantly over the next few years as financial institutions explore digital asset custody and trading solutions and payments companies incorporate Blockchain technology into their platforms.”
Following the growing interest in cryptocurrencies, the Federal Reserve released a 35-page report last week.