Bank of America Securities Report: Emerging Market Countries Lead in CBDC Adoption, But There Are Risks Like “Digital Dollarization”

According to The National News, central banks in emerging markets are adopting CBDC because they can significantly improve the efficiency of their payment systems, according to a report from Bank of America Securities (BofA Securities). They can also help promote financial inclusion, given that more than 50 percent of people in developing countries are unbanked. Bitcoin transactions are higher in emerging market countries where fewer people have bank accounts, with nine of the top 10 countries being emerging markets in terms of cryptocurrency adoption rates, according to Chainalysis.
However, the wider adoption of CBDC in emerging markets also poses risks, especially in countries where fiscal or monetary policies are seen as lacking credibility and where citizens are trying to save in hard currencies such as the U.S. dollar. In countries where dollarization rates are currently low, the adoption of CBDCs will not have much of an impact. But in countries with higher rates of dollarization, easier access will increase the process, a phenomenon known as “digital dollarization. Emerging market banks also face the risk of disintermediation, which could lead to greater volatility in their banking systems. The study also says that central banks may more easily use digital currencies as a means of stimulus, which also poses the risk of higher inflation and higher asset prices.