Why CBDC stands to benefit, not harm banks

Central Bank Digital Currency (CBDC) has been a hot topic in finance and banking lately. It is a new digital currency format issued and backed by a country's central bank. This means it is a legal tender with the same value as traditional fiat currencies. While some argue that CBDC could potentially harm banks and disrupt the traditional banking system, evidence suggests it benefits both banks and the overall financial system.

One of the main benefits of CBDC for banks is the potential cost savings. Traditional banking involves many manual processes and intermediaries, which can be costly and time-consuming. With CBDC, transactions can be done digitally and in real-time, reducing the need for intermediaries and streamlining processes. This would result in significant cost savings for banks and their customers.

Furthermore, CBDC could also provide banks with new revenue streams. As digital currencies become more mainstream, there will be a growing demand for services such as custody, trading, and lending of CBDC. Banks are uniquely positioned to provide these services, leveraging their existing infrastructure and expertise. This could open up new opportunities for banks to generate revenue and diversify their business models.

One of the biggest concerns about CBDC is that it could potentially harm banks by creating competition and reducing their profitability. However, this is only sometimes the case. CBDC is not meant to replace traditional fiat currencies or bank deposits but to complement them. It is a new form of currency that will coexist with conventional forms of money. This means that banks can continue offering services and maintaining their customer base while adapting to the changing landscape of digital currencies.

CBDC could benefit banks by increasing financial inclusion. With the rise of cashless societies, there is a growing concern that those who need access to traditional banking services will be left behind. CBDC could bridge this gap by providing a digital currency accessible to all, regardless of their social or economic status. This could also lead to the growth of new markets and business opportunities for banks as they cater to a broader pool of customers.

CBDC also has the potential to promote financial deepening. In many developing countries, much of the population remains unbanked or underbanked. This means that they need access to essential financial services, which can limit their economic growth and development. CBDC could change this by providing a secure and efficient financial transaction method. This could encourage more people to participate in the formal financial system, promoting financial deepening and supporting economic growth.

CBDC stands to benefit banks in various ways rather than harm them. It can reduce costs, open new revenue streams, and promote financial inclusion and deepening. Banks must adapt and embrace new technologies such as CBDC as the world becomes more digitised. By doing so, they can continue to thrive and play a crucial role in the financial system while providing their customers with innovative and convenient services.