The U.S. will likely move forward with its own digital currency, with issuance occurring between 2025 and 2030, according to Bank of America Corp.
U.S. government-backed coins, also known as central bank digital currencies, or CBDCs, “are an inevitable evolution of today’s electronic currencies,” strategists Alkesh Shah and Andrew Moss, wrote in a report Monday. In the meantime, use of digital currencies issued by private entities will probably grow, they said.
The Federal Reserve discussed developing its own coin in a 35-page paper last week, saying the paper was just a first step and it didn’t intend to proceed without support from the White House and Congress. A digital dollar could have a range of benefits, such as making cross-border payments cheaper and faster. However, it noted several potential risks as well, including possible runs on financial firms and a reduction in the amount of deposits in the banking system.
The Fed has asked for public comment on these issues by May 20.
In the absence of a U.S. CBDC, stablecoins, digital currencies issued by private companies and typically pegged to the U.S. dollar and other fiat currencies to avoid wild price swings, will likely flourish in the near term, according to the strategists.
“We expect stablecoin adoption and use for payments to increase significantly over the next several years as financial institutions explore digital asset custody and trading solutions and as payments companies incorporate blockchain technology into their platforms,” they said.
— By Allyson Versprille (Bloomberg Mercury)