topbrokersreview
  • June 24, 2021

New Bank of America Report Says Digital Currencies 'Could Boost Economic Growth' in Developing Countries.

A new Bank of America (BOA) research study has found that both central bank digital currencies (CBDCs) and private digital currencies have “a lot of potential” to help poor countries improve their financial inclusion.

In the report, the bank also claims that “digital currencies” might lower transaction costs and increase economic activity in emerging market economies.

Financial Inclusion and Digital Currencies

Nonetheless, the findings of the study reveal that, while digital currencies are expected to “boost economic growth” in developing nations, their introduction will be fraught with danger. Furthermore, the rise of digital currencies “could lead to inflation and dollarization,” according to the study.

Meanwhile, David Hauner, the BOA's head of developing market cross-asset strategy and economics for EMEA, is quoted in a separate study as outlining why digital currencies could be critical in emerging market countries where more than half of individuals do not have a bank account.

“Digital currencies have the potential to alleviate many of the practical constraints that impoverished countries have when it comes to financial services,” said Hauner.

Some of the limits that digital currencies can solve, according to the paper, include the decrease of cross-border payment costs, as well as the elimination of corruption and other criminal activities.

Risks to Physical Currency

However, according to the BOA research study, the rise of digital currencies could “undermine a country's actual currency.” Hauner elaborated on these findings, saying,

"Access to other digital currencies is likely to make the local money supply and exchange rate more volatile. Easier access to alternatives also increases the danger of quick liquidity movements out of (or into) the currency and banks, which can amplify macro volatility in nations that are already unstable. Higher macro volatility would impair the effectiveness of programmes and jeopardise long-term growth rates."

Despite these dangers, Hauner believes that “in the next three years, more central banks are likely to issue a general purpose CBDC.” Several countries, including a couple in Africa, are presently establishing or piloting their digital currencies, as previously reported by Bitcoin.com News. As more studies prove that the benefits of digital money exceed the hazards, several more countries are expected to join the race.