Deutsche Bank Report: Digital currencies Can Erode Dollar Dominance In Global Finance

Government bodies and central banking institutions across the globe have already started working on their respective digital currency projects. Central Bank Digital Currencies (CBDCs) remain a key topic of discussion among global financial institutions which has only escalated since the COVID-19 economic crisis.

Germany’s banking giant Deutsche Bank has released a new report: “Central bank digital currencies: Money reinvented,” that talks about the importance of CBDCs in the global financial ecosystem.

The Deutsche Bank said that consumers and financial institutions have to be prepared for the next digital revolution in the payments’ sector as CBDCs will predominantly transform the way we live.

The bank further goes to state that CBDCs adopted by major economies across the globe can “erode the dollar’s primacy in the global financial market”. The bank added that countries can use their own digital currencies to engage in bilateral trades in the future and this could possibly bypass the U.S. Dollar.

Currently, USD is called as the reserve currency of the world as it contributes to over 90% of the global transactions as per the bank of international settlements (BIS). The report further adds that the digital currency “be disruptive both for the banking sector and the practicalities of central bank policy.” 

Currently, most of the big central banking institutions are researching CBDCs. The Bank of England as well as the U.S. Federal Reserve have hinted about their work on digital currencies. Asia economic giant China has already accelerated its work on Digital Yuan and has also started testing it for different use-cases across the country.

The report also goes to mention that “Issuing one of the first CBDC would also be a step towards China’s target of becoming a world leader in science and innovation by 2050 and provide a reserve currency”.

Although currently in the testing phase, the central banks have started warming to the idea of digital currencies. Recently, the U.S. Banking regulator OCC allowed central banks to work in close cooperation with stablecoin operators and to maintain their reserve funds. Besides, they have also been working on simplifying crypto rules under the national federal structure instead of dealing with them separately at state levels.

The report goes to mention that the use of CBDCs can make the payment structure decentralized. It adds, “payments need to be secure and simple for individual adoption” and “universal access has to be guaranteed.”