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    Central bank digital currencies: The evolution of cash

    Central bank digital currencies: The evolution of cash

    01 April 2022 Global macro, Fixed income, Currency

    Executive summary

    • Central bank digital currencies (CBDCs) represent a new and safer form of digital payment, which are being investigated and developed by central banks around the world.
    • We outline six reasons central banks are seeking to launch CBDCs:
      1. To increase the efficiency of payments, particularly in cross-border transactions
      2. To increase the resilience of payment systems
      3. To increase financial inclusion
      4. To lay the foundations of a future digital economy
      5. To improve the efficiency of the implementation of monetary and fiscal policy
      6. To allow governments to defend their monetary sovereignty
    • From the various implications of CBDCs for economies and markets, we believe the most significant is the ability to target fiscal policy in unprecedented ways.
    • In the race of implementation, China and Sweden are currently ahead of the pack with the US moving only slowly. Over the long term, this could lead to pressure on the US dollar as it loses market share as the predominant reserve currency.
    • The implementation of CBDCs will require taking several technical decisions. While our central case scenario is that the choices will have limited repercussions, there are some risks. The most notable is the potential for a diminished role of commercial banks in the international financial system.
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