• Emerging CBDC cross-border transaction technology has the potential to transform the global economy by making services faster, cheaper, and safer.
• However, banks may not fare very well in this new economy as their role would be reduced even further.
• Banks may need a new infrastructure to support CBDCs, which could put a strain on resources and lead to systemic deleveraging.
Emerging CBDC Cross-Border Transaction Technology
Emerging central bank digital currency (CBDC) cross-border transaction technology has the potential to transform the global economy by making services for many of its participants faster, cheaper, and safer. This would require entirely new infrastructure, reducing the role of banks even further.
Risk To Banks Profits
Moody’s Investor Service released a report suggesting that banks‘ profits from payments, correspondent services, and foreign exchange transactions could be reduced as the role of CBDCs grows bigger. It could completely wipe out the role of correspondent banks in the process.
What Do Banks Need To Do?
Banks may have to build a new infrastructure to support CBDC interoperability at scale which could put a strain on resources in the short term. Central banks may need to compromise on decision-making so that different countries can transact with one another without forming “digital islands” that leave out other countries.
Potential Effects On Domestic Banking System
A U.S Treasury report was released detailing potential effects a CBDC could have on domestic banking system such as systemic deleveraging or reduction in equity leading to reduced stability in times of crisis after introduction of digital currency.
The emergence of cross-border CBDC transaction technology is an exciting development but it could also put bank’s profits at risk if they are not prepared for this rapidly changing landscape. Banks will need to build necessary infrastructure and make decisions regarding interoperability between different countries if they want to remain competitive in this digital age.