JPMorgan, the American Banking giant, has warned against the quick implementation of Central Digital Currencies(CBDC). The bank said to make new CBDC based retail loans, and payment channels must not cost the existing financial system.
The Central Bank Digital Currencies (CBDCs) must not “Cannibalize” countries commercial, financial systems, according to JPMorgan Chase & Co.
JPMorgan strategist Josh Younger wrote a note called financial inclusion in the digital currencies plan. He also stated it is possible to have more financial inclusion without significantly affecting the existing monetary system.
Younger said if CBDC becomes an important form of transaction, it could lead to the exodus of 20% -30% of their funding base. A sudden move to take on CBDC based accounts could disrupt the banking system. As a result, it would exit no funds with commercial banks to offer loan or mortgage services.
“Relatively heavy-handed caps on holdings would be needed to reduce the utility of a retail CBDC as a store of value,” Younger said.
Younger proposed a limit of $2500 cap for the CBDC account. That would meet the needs of lower-income households without any major impact on commercial bank’s funding. The majority of households have less than $1000 in their checking account.
“If every last one of those depositors were to hold only retail CBDC, it would not have a material impact on bank funding,” Younger said.