Bank of America analysts have highlighted significant global momentum towards the exploration of Central Bank Digital Currencies (CBDCs), with central banks representing 67% of world nations and 98% of global GDP delving into this new form of currency. A recent analysis, led by BAC analysts on Monday, underscored that while many countries are actively investigating the potential of CBDCs, a digital dollar issued by the Federal Reserve is not expected in the near future due to the necessity for approval from both Congress and the executive branch.

CBDCs, which are essentially digitized versions of a country’s official currency, are being assessed for their ability to make domestic and cross-border payments more efficient, support monetary policy implementation, and promote financial inclusion. However, these benefits come with potential downsides. The Bank of America report cautioned about the risks associated with CBDCs, such as their potential to compete with traditional bank deposits, provoke more frequent bank runs, undermine monetary sovereignty, and cause international tensions.

The Federal Reserve is amongst those central banks exploring CBDCs but has made it clear that it will not move forward without legislative and executive consent. Despite these hurdles in the United States, other nations are advancing in their CBDC initiatives. Earlier in November, the Swiss National Bank (SNB) embarked on a wholesale CBDC pilot project in partnership with SIX Digital Exchange (SDX) and six commercial banks. This pilot represents one of the more advanced stages of CBDC development globally.

The exploration into CBDCs by such a significant portion of the world’s central banks indicates a growing recognition of the transformative potential these digital currencies hold for the future of financial systems worldwide. While the landscape is promising, it is also complex and fraught with challenges that policymakers will need to navigate carefully.