Korean Regulator: Central Banks’ Crypto Could Harm Financial System
The Central Bank of Korea assessed the impact of digital currency issuance by regulators (CBDC) and concluded that cryptocurrency could harm the financial system.
In particular, as stated in the study, the issuance of CBDC by central banks may affect liquidity in the banking system. After all, citizens will have access to financial services directly. This means the demand for deposits in commercial banks will collapse, and financial institutions will lack money. To fight the cash shortage, banks can raise interest rates on loans.
Such a situation will lead to panic among banks and will have a negative impact on the financial system.
However, the Korean regulator is confident these complications can be avoided if measures are taken in advance.
Last spring, three Central Banks — Canada, Singapore, and the United Kingdom — released their study on the CBDC. At that time regulators concluded that CBDC can speed up cross-border payments, and provide customers with greater anonymity.