The U.S. Department of the Treasury’s Financial Research Office has published a paper examining the role of state-owned cryptocurrencies and their impact on commercial banks.
According to the study, access to digital currencies of the Central Bank reduces the need for banks to insure liquidity risks and gives the authorities more information about problems in the financial system. The report mentions the opinions of some experts who believe that during economic turmoil, the public can withdraw funds from banks and other financial institutions – that is, create a so-called “banking panic” when depositors withdraw their deposits en masse due to doubts about their financial situation. jar. However, the US Treasury emphasizes that a well-designed central bank digital currency can mitigate these risks and increase financial stability.
The authors of the report created a mathematical model in which banks performed a maturity transformation – they borrowed money for shorter periods than they gave loans to hedge against liquidity risk. This can create financial instability in the event of adverse events and lead to a “banking panic”. However, access to the digital currency of the Central Bank in this model makes the liquidity crisis less costly for depositors, so banks can provide insurance against this risk at a lower cost. Thus, the authors argue, the digital currency of the Central Bank provides greater financial stability.
The second argument was based on the so-called information effect. Banks in weak positions may try to hide this fact from regulators to avoid interference. Hiding unfavorable information can also exacerbate the crisis due to delayed response. The principle of operation of the digital currency of the Central Bank will allow politicians to identify situations where funds are converted, and not just withdrawn from the bank. This will allow politicians to react faster to crisis situations.
Recall that earlier, analysts at the London-based Alan Turing Institute said that digital currencies of central banks give more people access to banking services, but they invade too much privacy.
Source: Bits
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