Digital Dollar Could Threaten Banking Sector, Financial Stability: BoC Research

Published on February 21, 2024

Bank of Canada research says a digital currency could reduce deposits held at commercial banks, thus increasing their costs of doing business. Furthermore, a central bank digital currency (CBDC) could raise the likelihood of bank runs—a risk to financial stability—according to a monetary policy expert.   “The CBDC would directly compete with bank deposits in the market for digital money. As a consequence, there are concerns that a CBDC could substantially crowd out bank deposits, which may undermine financial stability by raising the funding cost and reducing the profitability of the banking sector,” said the BoC in a staff working paper published Feb. 8....

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