BASEL, Switzerland—Digital currencies are not necessary and may present problems related to financial stability, according to a new report by the Bank for International Settlements (BIS).
Specifically, the report suggests central bank digital currencies (CBDCs) could spur a “digital run” in periods of systemic stress.
In the report the BIS said it examined the impacts of CBDCs and stablecoins on emerging markets and developing economies (EMDEs and noted that many developing economies are launching CDBCs to improve their payment infrastructure, The Tokenist reported.
Effective Tool, But…
The BIS added that EMDEs believe CBDCs to be an effective tool for reducing costs, improving know-your-customer and anti-money laundering obligations, and combating finance terrorism. However, the bank also highlighted that CBDCs also present policy challenges for these countries as they can prompt a digital bank run.
“CBDCs – and in particular retail CBDCs – present their own policy challenges for EMDE authorities,” the report states. “In particular, there is a risk that in periods of systemic stress, households and other agents may suddenly shift from bank deposits or other instruments into the CBDC, spurring a ‘digital run’ of unprecedented speed and scale.”
‘More Dangerous’
According to the report, a digital bank run scenario could occur if a large number of customers transferred their savings out of the private financial system and into a CBDC at once.
“This form of a bank run is deemed more dangerous as it could feasibly happen very quickly and only requires a few mouse clicks from account holders,” The Tokenist noted.